Ask Question
BusinessBusiness
12 November, 10:39

Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now. The beta of Sure Tool Company's stock is 1.25. What is the intrinsic value of Shares stock today

+5
Answers (1)
  1. 12 November, 11:05
    0
    The intrinsic value of Sure Tool Company stock today is $20.60

    Explanation:

    We will find out the instrinsic value of the stock today by the required rate of return formula, but first we will calculate the required return on the stock using the CAPM model.

    As per CAPM,

    Required Rate of Return = Rf + Beta (Rm - Rf)

    Rf = 4%

    Rm = 14%

    Beta = 1.25

    Required rate of Return = 4% + 1.25 (14% - 4%) = 16.5%

    Intrinsic value of the stock:

    Required Rate of Return = (Expected Price - P + Expected Dividend) / P [Where P is Intrinsic Value]

    0.165 = ($22 - P + 2) / P

    0.165P = $24 - P

    1.165P = $24,

    P = $24 / 1.165 = $20.60
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
A superficial analysis in a formal report is often the most useful type of analysis. a. True b. False
Answers (1)
T or f a counteroffer does not terminate but continues an offer.
Answers (1)
During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced.
Answers (1)
You just purchased a share of SPCC for $100. You expect to receive a dividend of $5 in one year. If you expect the price after the dividend is paid to be $110, what total return will you have earned over the year
Answers (1)
Max has two options this weekend. He could work at his job and earn $7 per hour for three hours, or he could go to an exhibit at the art museum for that three hours. A ticket for the event costs $30. What is the opportunity cost of the event? $
Answers (1)
New Questions in Business
A master plan is devised for a. emergencies. b. long-range goals. c. investments. d. short-term goals
Answers (1)
Adama Company reported a net loss of $6,000 for the year ended December 31, 2014. During the year, accounts receivable increased $15,000, merchandise inventory decreased $12,000, accounts payable decreased by $20,000, and depreciation expense of
Answers (1)
2. Which of the following headlines is more closely related to what microeconomists study than to what macroeconomists study? a. Unemployment rate falls from 7.5 percent to 7.3 percent. b. Real GDP falls by 0.4 percent in the third quarter. c.
Answers (1)
Scenario 1: suppose savers either buy bonds or make deposits in savings accounts at banks. initially, the interest income earned on bonds or deposits is taxed at a rate of 20%.
Answers (1)
Charm Co. owns a delivery truck with an original cost of $10,000 and accumulated depreciation of $7,000. Charm acquired a new truck by exchanging the old truck and paying $2,000 in cash.
Answers (1)
Home » Business » Sure Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 4%, and the expected return on the market portfolio is 14%. Analysts expect the price of Sure Tool Company shares to be $22 a year from now.
Sign Up Forgot Password?