as Cut Calibri General Copy Format Painter B 1W-E O-A- Merge & Center $, % , . C

Question

as Cut Calibri General Copy Format Painter B 1W-E O-A- Merge & Center $, % , . Clipboard Font : X Y fr Last dividend paid. FIRM VALU Item What this is Data Pepsi 0.64 3.22 6.36% 1.80% 7.20% Company name Beta Divo Firm beta. Last dividend paid. Analysts' expected long-term gro Risk-free rate. Expected return of the market. Required rate of return. rf E(rm) E(r) D1 = Next period's dividend. Estimated intrinsic value (price). P (market)= 93.14 Current market price. Decision = Given the data, what should you de Template O Type here to search

Explanation / Answer

Required rate = Rf + Beta * (Rm - Rf)

= 1.8% + 0.64*(7.2% - 1.8%) = 5.26%

D1 = D0 * (1 + g)

   = 3.22*(1+6.36%) = 3.42

P = D1 / (r - g)

In this example, r is lower than g, it is not possible, as it gives negative value

   = 3.42 / (5.26% - 6.36%) = -310.22

Wrong data

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