Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2. What is the intrinsic value of Torque's stock?
A) $14.29
B) $14.60
C) $12.33
D) $11.62

Question

Quizplus · Accepted Answer

k = 5% + 1.2(13% 5%) = 14.6%; P = 1/(.146 .06) = $11.62.

Torque Corporation Is Expected to Pay a Dividend of $1