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Westsyde Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 12%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's stock is 1.2. Using a one-period valuation model, the value of Westsyde Tool Company stock today is _________. A. $24.29 B. $34.52 C. $31.13 D. $27.39

Respuesta :

abiolataiwo2015

Answer:

$27.39

Explanation:

Calculation for Westsyde Tool Company stock today

First step

Using this formula

k = Risk-free rate of return+Stock(Expected return-Risk-free rate of return)

Let plug in the formula

k=0.06 + 1.2(0.12 − 0.06)

k=0.06+1.2(0.06)

k=0.06+0.072

k= 0.132

Now let find the Company stock today using this formula

V0=Dividend +Shares/k

Let plug in the formula

V0=2.00+29.00/1+0.1320

V0=31.00/1.132

V0= $27.39

Therefore the Company stock today will be $27.39

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