WannaDance Corporation is considering issuing common shares. Their market price is currently $73.50, but the firm would
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Question:
WannaDance Corporation is considering issuing common shares. Their market price is currently $73.50, but the firm would like to verify the offering price. The following data is available:
Beta | 1.14 |
Risk-free rate | 2.5% |
Stock index return | 8.0% |
Growth rate | 1.5% |
Current dividend | CAD 5.00 |
REQUIRED:
- Calculate the intrinsic value of WannaDance Company's shares. Should WannaDance issue new shares now?
- How would the intrinsic value in Part 1 change if WannaDance Company's beta fell to 1.02?
- Re-do Part 1 assuming the dividends were expected to grow at 8.0% for the first three years before falling to 5.0%?
- WannaDance is uncertain of some of its inputs and has decided to do a best- and worst-case analysis. The following data is available:
Best | Baseline | Worst | |
Supernormal growth | 9.0% | 8.0% | 7.0% |
Growth period | 5 years | 3 years | 2 years |
Normal growth | 2.8% | 2.5% | 2.1% |
Probability (symmetrical) | 33.33% | 33.33% | 33.33% |
Share value (scenario) | $112.17 | $94.80 | $83.82 |
Value of the share | $96.93 (weighted avg) |
Would this affect the decision made in Part 1? Assume the results will follow a symmetrical distribution.
I need to understand very simple the calculations, please. Step-by-step calculations are to be done with very simple explanations
Related Book For
Organizational Behavior An Evidence Based Approach
ISBN: 9781648021251
14th Edition
Authors: Fred Luthans, Brett C. Luthans, Kyle W. Luthans
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