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The riskfree rate is 2.5% and the excess market return is expected to be 6%. Use the Gordon growth model to obtain the intrinsic value of a firm that has a dividend of $4.95, beta of 1.12, and dividend growth of 5%

Respuesta :

Answer:

$366.02

Explanation:

The computation of the intrinsic value per share is as follows;

But before that the required rate of return is

As we know that

Required rate of return = Risk free rate of return + beta × (market rate of return - risk free rate of return0

= 2.5% + 1.12 × (6% - 2.5%)  

= 6.42%

Now the intrinsic value per share is

= $4.95 × 1.05 ÷ (6.42% - 5%)

= $366.02

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