Problema companys common stock is selling for 16 the, Ask an Expert

Accounting

Problem:

A company's common stock is selling for $16. The stock just paid a dividend (D₀) of $.60 and this dividend is expected to grow by 15% per year for three years. After that it will grow at a constant rate of 4%. The stock's beta is 1.7, the risk-free rate of interest is 1.75% and the market risk premium is 5.25%.

Required:

Question: According to the DCF model, what is the intrinsic value of the stock today? Given the current stock price today (P₀ = $16), should you buy the stock and briefly explain why or why not?

Note: Please provide reasons to support your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91171385

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