Under what circumstance would agency conflict be most likely to increase? When owners are very close to the business. When owner
1 answer:
You might be interested in
Answer:
See the explanation
Explanation:
See the image below:
Part a: The market capitalization rate is 9.25%
Part b: The intrinsic value of the stock is $70.59
Market capitalization rate is another name for the stock's required rate of return. It is called the market capitalization rate because we can infer it by observing the market value of the stock. One way to find this rate is the capital asset pricing model (CAPM).
Part a:
Let,
r = market capitalization rate
f = risk free rate = 5%
m = return on the market = 10%
We can find the market capitalization rate with the help of the capital asset pricing model (CAPM),
The market capitalization rate is 9.25%.
Part b:
Let,
D be the dividend expected = $3
r be the interest rate = 9.25%
g = growth rate of dividends = 5%
The price is given by the dividend growth model:
The intrinsic value of the stock is $70.59
Learn more about CAPM:
#SPJ4