You were hired as a new analyst to project the value of the Lancelot Company, a new cybersecurity firm.

Today is June 2nd 2021. The Lancelot Company just paid an annual dividend yesterday (on June 1st, 2021) of $3.00 per share. You expect the company's dividend to grow at 15% for three years (2022, 2023, 2024). Following this, you expect the company to grow at a 10% rate for three years (2025, 2026, 2027). Finally, you expect the company to grow at a constant rate of 5% thereafter. The Lancelot Company.

The equity beta of the company is 1.5, the risk-free rate is 2% and the expected return to the market is 10%. Assume the CAPM holds.

According to the CAPM, what is the appropriate discount rate?

What should the price per share of Lancelot be, according to the dividend discount model?

If the current market value of the Lancelot Company is $65.75, what would you recommend?

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Answer rating: 100% (QA)

According to the CAPM the appropriate discount rate is CAPM discount rate Riskfree rate Equit... View the full answer