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A company has 4m shares in issue with anominal value of $0.50 per share.A dividend of 24 cents per share has just been paid.Four years ago the dividend was 20.51 cents per share.The beta of shares in the company is 0.5.The risk free rate is 3% and the market premium is 8%.What is the market captalisation of the company?
ans is $33280000 how?I really do suggest that you watch the free lectures!!
You use the dividend growth formula from the formula sheet.
the dividend growth rate = g = (fourth root of (24/20.51)) – 1 = 0.04 (4%)
From the CAPM formula, Re = 3% + 4% = 7%
Therefore using the value, the market value per share = (24 x 1.04) / (0.07 – 0.04) = 832c (or $8.32 per share).
Multiply by the number of shares and you have the answer.
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