Uran Company is a company in the maturity stage of the industry life cycle and is expected to pay a dividend of $2.5 in the upcoming year. Security analysts expect the stock price of Uran Company to be $25/share a year from now. The beta coefficient of Uran Company's stock is 1.4. The risk-free rate of return is 4.2% p.a. and the expected rate of return on the market portfolio is 14.8%. (a) What is the intrinsic value of Uran Company's stock today? (b) (i) Calculate the required rate of return on Uran Company's stock by using CAPM. (ii) By using constant growth rate model, if Uran Company's intrinsic value is $21 today, determine its growth rate g. (3 marks) (2 marks) (4 marks) Question 2 Potassium Company has just paid a dividend (D0) of $1.20 per share. Security analysts expect the company's dividend to grow at 20% for coming 2 years. After 2 years, the dividend is expected to grow at a constant rate of 8% onwards. The required rate of return on the Potassium Company's stock in the market is 14%. (a) (i) Calculate the expected dividends in the first 3 years. (ii) Calculate the terminal value TV2 in the 2nd year. (b) Determine the intrinsic value of Potassium Company's stock.

Answer rating: 100% (QA)

SOLUTION a To calculate the intrinsic value of Uran Companys stock today we can use the dividend discount model DDM as follows Intrinsic value D1 r g ... View the full answer