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How to calculate this finance question?
The board of directors decided to pay dividends of $0.28 per share next year. After which its dividends are expected to grow at 5 percent per year into the foreseeable future. The beta is 2.1, market rate of return is 9 percent, and T-bills of 6 percent. If the shares are currently selling for $3.50, should the company's shares be purchased?
Step 1, First I find the required rate of return: K=rf+beta(rm-rf)= 0.06 +2.1(0.09-0.06)= 0.123= 12.3% How to you calculate the rest and how to compare with the shares currently selling for $3.50? Could you explain step by step? Thank you! |
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