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


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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