roblem 6-22 Suppose the dividends for the Seger Corporation over the past six ye
ID: 2638437 • Letter: R
Question
roblem 6-22
Suppose the dividends for the Seger Corporation over the past six years were $2.54, $2.62, $2.71, $2.79, $2.89, and $2.94, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk premium is 10.5 percent, Treasury bills yield 5.6 percent, and the projected beta of the firm is .92. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Suppose the dividends for the Seger Corporation over the past six years were $2.54, $2.62, $2.71, $2.79, $2.89, and $2.94, respectively. Compute the expected share price at the end of 2014 using the perpetual growth method. Assume the market risk premium is 10.5 percent, Treasury bills yield 5.6 percent, and the projected beta of the firm is .92. (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "$" sign in your response.)
Explanation / Answer
Share Price - 23.55
With the dividends given for the 6 years, calculate the growth for the dividends each year and then take average to get the growth rate of the Dividend which comes out to 2.47%
We have the Risk Premium, Risk free rate and the Beta, calculate the Expected rate of return by the CAPM formula which comes out to be - 15.26%
Using Dividend growth model calculate Share Price is - 23.55
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