P7-21 Integrative-Risk and valuation

Giant Enterprises' stock has a required return of 14.8%. The company, which plans to pay a dividend of $2.60 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2006-2012 period, when the following dividends were paid:

If you want to view the table that goes along with this question you can do so by going to this website:

http://homes.ieu.edu.tr/hbaklaci/itf507fall2011/Managerial%20Finance_13e.pdf

Then, just go to page 302 to view the table.

a. If the risk-free rate is 10%, what is the risk premium on Giant's stock?

b. Using the constant-growth model, estimate the value of Giant's stock.

c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock?

 

Join now or log in to start viewing answers.

Get the solution to your question. Sign up now! 40 tutors are online now, chat with them live.

Sign up for solution