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November 28, 2014

Homework Help: Finance and Investment

Posted by Kim on Tuesday, October 24, 2006 at 1:29pm.

What is the value of a common stock if:
a) If earnings and dividends are growing annually at 10%, the current dividend is $1.32 and investors require a 15% return on investmenets in common stock?

b)What is the value of this stock if you add risk to the analysis and the firm's beta coefficient is 0.8, the risk-free rate is 9%, and the return on the market is 15%?

Thank you so much, I have lost my book and I need help with this one.



You've given us data about this stock -- but not the current selling price. You need to know that to determine its present value. But -- with earnings and dividends (sales, too?) growing annually at 15%, it's likely that the price will grow at something considerably less than 15%. This is also shown by the low beta coefficient of 0.8.

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