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Woo Financial Services Declared dividends of $1 today. Dividends are expected to remain the constant for 3yrs.

Woo Financial Services Declared dividends of $1 today. Dividends are expected to remain the constant for 3yrs. After year 3 dividends are expected to grow 5% for 2yrs, 15% for 3yrs after which settle to 12% forever. The risk free rate is 6% and the market risk premium is 7%. Beta risk is 50% higher than that of the market. How much would you pay for a share of Woo financial services today? Show all work
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Dear Student, Please find the solution. The answer to your... View the full answer

8431802.xlsx

SOLUTION:
Beta of Market 1.00 Beta of Company = 1 * (1 + 50%)
Beta of Company 1.50 As per CAPM, Ke = Rf + Beta * Market Risk Premium
Ke = 6% + 1.50 * 7%
Ke 16.50%
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8 Cash Flows...

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