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Market Capitalization

This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.

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December 4, 2014 at 9:05 pm #217709
Carol
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A company has 4 million shares in issue with a nominal value of $0.50 per share. A dividend of 24 cents per share has just been paid. Four days ago the dividend was 20.5 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 capitalization of the company?
December 5, 2014 at 7:46 am #217807
John Moffat
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I am guessing you mean that 20.5 cents was the dividend 4 years ago 🙂
The required return is got using the CAPM formula: 3% + 0.5×8% = 7%
The dividend growth rate is (fourth root of 24/20.5) – 1 = 0.0402 (4.02%)
The use the dividend growth formula to get the MV.
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