# Juvani has a beta of 1.50, the

Juvani has a beta of 1.50, the risk-free rate of interest iscurrently 12 percent, and the required return on the marketportfolio is 18 percent. The company plans to pay a dividend of\$2.45 per share in the coming year and anticipates that its futuredividends will increase at an annual rate as follow; D2017= 2,32,D2016= 2.12, D2015=2.30. what is the price of Juvani stock

Please Solve As soon asSolve quickly I get you two UPVOTE directlyThank’sAbdul-Rahim Taysir

First we should calculate the cost of equity from Capital AssetPricing model

Cost of equity= (Risk-free rate)+(beta*(Required return on themarket-risk-free rate))

= 0.12+(1.5*(0.18-0.12))=0.21=21%

Dividend at the end of 2014 is \$2.45. Discounted Valueof dividend to be received in 2014 year end is 2.0248

Dividend for 2015= (2.45*1.023)= \$2.51 (ronding off to 2 decimalpoints). Discounted Value of dividend to be received in2015 year end is \$1.7144

Dividend for 2016=(2.51*1.0212)=\$2.56. Discounted Valueof dividend to be received in 2016 year end is \$1.4450

Dividend for 2017= (2.56*1.0232)=\$2.62

Terminal value calculation for Dividend after end of 2017 willbe calculated as follows with an assumption of post 2017 thedividends would grow at 2.32%

Terminal value of Dividends is((2.62*1.0232)/(0.21-0.0232)=(2.62*1.0232)/0.1868=\$14.35

This terminal value is the present value of all the futuredividends post 2017.So dividends at the end of 2017 is

\$14.35+\$2.62=\$16.97

Discounted Value of terminal value to be received in2017 year end is \$7.9166

So Present Value of the stock is sum of discounted value of theabove items which is

= \$13.1008

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