National Advertising just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\mathrm{D}_{0} & \$ 0.75 \
\mathrm{~b} & 1.25 \
1 \mathrm{RF} & 4.5 \% \
\mathrm{~T}_{\mathrm{M}} & 10.5 \% \
\mathrm{~g} & 6.5 \% \
\mathrm{D}_{1}=\mathrm{D}_{0}(1+\mathrm{g})= & \$ 0.7988 \
\mathrm{I}_{\mathrm{S}}=\mathrm{R}_{\mathrm{RF}}+\mathrm{b}\left(\mathrm{I}_{\mathrm{M}}-\mathrm{R}_{\mathrm{RF}}\right)= & 12.0 \% \
\mathrm{P}_{0}=\mathrm{D}_{1} /\left(\mathrm{r}_{\mathrm{S}}-\mathrm{g}\right) & \$ 14.52
\end{array}$

National Advertising Just Paid a Dividend of D0 = $0