Beagle Beauties engages in the development manufacture and s

Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look glamorous. Below you will find selected information necessary to compute some valuation estimates for the firm. Assume the values provided are from year-end 2015. Also assume that the firm’s equity beta is 1.3, the risk-free rate is 2.03 percent, and the market risk premium is 6.5 percent.

Estimate the current share price of Beagle Beauties stock according to the constant dividend growth model.

(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Solution

growth rate = 8% *(1 - 2.24/5.3) = 4.6189%

cost of equity = 2.03 + 1.3*6.5 = 10.48%

current share price = 2.24 * 1.046189/(0.1048 - 0.046189) = 39.98