Hallo Ltd. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 30% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D , was RM1.50, its beta is 1.60, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

Hallo Ltd. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 30% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D , was RM1.50, its beta is 1.60, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 21P

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