For this problem assume the following:
(1) the risk-free rate of return = 0.5%
(2) the required return on the market as a whole = 10.0%
(3) the Beta of the Tom Company = 1.0
(4)Tom just paid a dividend = $2.50 per share of common stock
(5) investors expect Tom to increase the dividend by 6% per year over the foreseeable future

A) what is the required return on an investment in Tom common stock?
B) what is your best estimate of the intrinsic value of a share of Tom stock?
C) if the current price of Tom stock = $52.00/share, and you don't own any Tom stock and you are confident of your estimate of its intrinsic value, what should you do?

Answer rating: 100% (QA)

A The required return on an investment in Tom common stock can be calculated using the Capital Asset ... View the full answer