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(Solved): Buspru Inc. Paid Dividends Per Share Of 2,59 In 2019, And Dividends Are Expected To Grow 1,87% Per Y...

Buspru Inc. paid dividends per share of 2,59 in 2019, and dividends are expected to grow 1,87% per year forever. The stock has a beta of 0.85, and the Treasury bond rate is 2%. Use a risk premium of 5%.

a) What is the value per share 31 December 2019?

b) The stock was trading for $70 per share. What would the growth rate in dividends have to be to justify this price?

c) What issues, if any, does the growth level estimated in b) raise?

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Expert Answer

D0 = 2.59; g = 1.87%; Beta = 0.85; Rf = 2%; Rmp = 5% Part (a) Ke = Rf + beta x Rmp = 2% + 0.85 x 5% = 6.25% D1 = D0 x (1 + g) = 2.59 x (1 + 1.87%) =2.6384 Value per s

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