You are a financial analyst at Bank of America, and you have collected the following information for Lotus Tech Company. The company has a beta of 1.5 and an ROE of 20%. The dividend payout ratio is 50%. The last twelve months' earnings were $4 per share. The annual dividend was just paid. The consensus estimate of the coming year's market return is 11%, and T-bills currently offer an 8% return. a. What is the required rate of return of the stock? (input format: 15.32%) b. What is the growth rate of the stock? (input format: 15.32%) c. What is the intrinsic value of the stock? (input format: $15.32) d. What is the PVGO of the stock? (input format: $15.32) e. Suppose your research convinces you that the company will announce momentarily that it will immediately change its dividend payout ratio to 75%. Find the intrinsic value of the stock. (input format: $15.32)
Added by Kristy J.
Step 1
The formula for CAPM is: Required Rate of Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate) Given: Risk-Free Rate = 8%, Beta = 1.5, Market Return = 11% Calculation: Required Rate of Return = 8% + 1.5 * (11% - 8%) = 8% + 1.5 * 3% = 8% + 4.5% = Show more…
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