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QUESTION:
Beta’s earnings are $5.1m. cost of capital is 10% and the growth rate is 4%. what is the market value of the company?Been going through my F9 MCQ app on my phone, and it really is bugging me that I cannot figure out the answer given in there. Anybody that feels like taking a crack at it, would be only too pleased to view your answer (with workings hopefully)!
Its one of those things that its going to really bug me until I figure it out, so any help, its duly appreciated!
Use the dividend growth formula.
Usually we apply it to the dividends and use the cost of equity to get the market value of the equity.
However you can use exactly the same formula to get the market value of the whole company, using earnings instead of dividend, and cost of capital instead of cost of equity.The answer is $88.4M
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