Driver Products recently paid its annual dividend of $4, and reported an ROE of 15%. The firm pays out 50% of its earnings as dividends. The stock has a beta of 1.15. The current risk-free rate is 2.7% and the market return is 11.00%. Assuming that CAPM holds, what is the intrinsic value of this stock

Answers

Answer 1

Answer: $90.62

Explanation:

First, we need to calculate the expected return. This will be:

= 2.7 + [1.15 × (11 - 2.7)]

= 2.7 × 9.545

= 12.245

= 12.5

We the calculate the growth rate which will be:

= ROE × (1 - payout ratio)

= 15 × (1-0.5)

= 15 × 0.5

= 7.5

The intrinsic value of this stock will then be:

= 4 × (1+0.075) / (0.12245 - 0.075)

= 90.62


Related Questions

Other Questions
write a letter to your friends describing your family. If you are given the graph of a line and are asked to write the equation of a perpendicular line, does it matter what the y-intercept will be for the equation you write? Why or why not? 11. Which of the following artists is known as the father of pop art? A. Andy Warhol B. Norman Lewis C. Richard Hamilton Which best explains why all equilateral triangles are similar?all equilateral triangles can be mapped onto each other using dilationsall equilateral triangle can be mapped onto each other using rigid transformationsall equilateral triangles can be mapped onto each other using combinations of dilations and rigid transformationsall equilateral triangles are congruent and therefore similar with side links and a 1:1 ratio What is the text structure of this passage?By secret treaty during the French and Indian War(1755-63) the French transferred Louisiana to Spain in1762. The acquisition made Spain the controllingauthority over the Mississippi River to its origins.Louisiana remained under Spanish rule until 1800,during which time it prospered, witnessing thegermination of the vibrant cultural and artistic life forwhich the state is still known. ... In a 1795 treaty withSpain, the United States obtained rights to navigate theMississippi River and use the port of New Orleans as aO cause and effectO steps in a processO compare and contrastO sequence of eventsplace of deposit for American commodities andtransshipment on oceangoing vessels.-Louisiana: European Explorations and theLouisiana Purchase,Michael Klein In XYZ, suppose XY < XZ. Which inequality relates two angles in XYZ? Today I was at a animal sanctuary, had coffee, and chocolate milk for breakfast. Than had McDonald (cheese burger and fries with a frappe) I feel so sick. Should I? Lol Will give brainest!!!!If Jethro returns to the dark movie theater to retrieve his purple jacket he would be using which property of perception?a) Color constancyb) Brightness constancyc) Depth perceptiond) Gestalt theory Can yall help me please like bro omg idk With which of the following would John Wycliffe not agree?A:Clergy members living in povertyB: Christians reading and analyzing the Bible themselves C:A priest telling his congregation that bread and wine turned to the body and blood of Jesus during communion D:Christians speaking out against corruption in the churchNEED ANSWER ASAP! Help me solve this problem please A table showing Pounds, Price per Pound, and Total Price. The first row shows Granola, with the entries, 3, 3, and 3 times 3. The second row shows Raisins, with the entries 0.75, 2, and 0.75 times 2. The third row shows Mixture, with the entries 3 plus 0.75, x, and left-parenthesis 3 plus 0.75 right-parenthesis x. Marion is making trail mix for a group camping trip. She buys 3 pounds of granola for $3 per pound and 0.75 pounds of raisins for $2 per pound. What equation can you use to find the price per pound of the trail mix? 3(3)(0.75)(2) = (3 + 0.75)x 3(3) + 0.75(2) = (3 + 0.75)x 3(3)(0.75)(2) = (3 + 0.75) + x 3(3) + 0.75(2) = (3 + 0.75) + x Nobody among the actors is nationally known. Plural or singular Write a series of rigid motions that transform pentagon ABCDE to pentagon ABCDE write a word problem with 3-4 full sentences that can be represented by the expression 14 1/8 divided by 3. From a hot air balloon 2,500ft above the ground you see a clearing whose angle of depression is at 25 degrees. What is the horizontal distance form the clearing to the nearest feet Which of these components are found in the cells of all living organisms?Pls help The graph of the equation y=4x+2 passes through the point (1,y).Enter the y-value of the coordinate (1,y). What percent of ones daily caloric intake should come from carbohydrates? A.10 - 35%B.20 - 35%C.45 - 65%D.70 - 75%Please select the best answer from the choices provided.ABCD PLEASE HELP ME, YOU WILL SAVE ME Which would produce a sample that would be representative of a school's seventh-grade population?a. survey every fifth seventh grader entering the cafeteria who brought their lunch to schoolb. survey every fifth seventh grader in the libraryc. survey every fifth seventh grader entering the school at the beginning of the school dayd. survey every fifth seventh grader in a pre-algebra class