Cinema Corp. has a stock beta of 1.1 and the market price of its stock is $31.
Question:
Cinema Corp. has a stock beta of 1.1 and the market price of its stock is $31. The risk-free rate is 4% and the expected return on the market portfolio is 12%. Find the required rate of return using the Capital Asset Pricing Model. The company's dividend is expected to grow by 10% for the first three years and 7% thereafter. Current dividend is $1.5. Is the fair(intrinsic)price value of the stocks different from today's market price of $31? Use the multi-stage model to find the fair value. Should you buy or sell Cinema corp.?
b-A lawsuit has been filed against the company by a competitor, and the potential loss has increased risk, which is reflected in the company's beta, increasing it to 1.6. What is the estimated price of the stock following the filing of the lawsuit? Explain your answer.
Don't hand writing
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves