Valuation Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the...

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Valuation

Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 5% and the market risk premium is 5%.
Van Buren currently expects to pay a year-end dividend of $2.30 a share (D1 = $2.30). Van Buren's dividend is expected to grow at a constant rate of 4% a year, and its beta is 0.7. What is the current price of Van Buren's stock? Round your answer to two decimal places.

David · Accepted Answer

SOLUTION 
The current price of the stock will be $51.11
The intrinsic value of an stock is calculated as: 
                  
                      
     
 
First, we need to compute the expected rate of return (i.e. Ke) using the data given: 
                  (  )
Since,

Valuation Harrison Corporation is interested in acquiring Van Buren Corporation. Assume that the risk-free rate of interest is 5% and the market risk premium is 5%. Van Buren currently expects to pay...

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