ABC inc has a beta coefficient of 1.2. Currently the risk free rate is 2% and the anticipated return on the market is 8%. ABC pays a $4.50 dividend that is growing at 4% annually.
Question
- What is the required return for ABC?
- Given the required return, what is the value of the stock?
- If the stock is selling for $100, what action should be taken?
- If the beta coefficient declines to 1.0, what is the new value of the stock?
- if the price remains $100, what is the course of action given the valuation in question 4?