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Motor Homes Inc. (MHI) is presently in a stage of abnormally high growth because of a surge...

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Finance

Motor Homes Inc. (MHI) is presently in a stage of abnormallyhigh
growth because of a surge in the demand for motor homes.The
company expects earnings and dividends to grow at a rate of 20percent
for the next 4 years, after which time there will be no growth(g = 0) in
earnings and dividends. The company's last dividend was $1.50.MHI's
beta is 1.6, the return on the market is currently 12.75percent, and the
risk-free rate is 4 percent. What should be the current priceper share of
common stock?

Answer & Explanation Solved by verified expert
3.7 Ratings (435 Votes)
As per CAPM expected return riskfree rate beta expected return on the market riskfree rate Expected return 4 16 1275 4 Expected return 18 Required rate 1800 Year    See Answer
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Transcribed Image Text

Motor Homes Inc. (MHI) is presently in a stage of abnormallyhighgrowth because of a surge in the demand for motor homes.Thecompany expects earnings and dividends to grow at a rate of 20percentfor the next 4 years, after which time there will be no growth(g = 0) inearnings and dividends. The company's last dividend was $1.50.MHI'sbeta is 1.6, the return on the market is currently 12.75percent, and therisk-free rate is 4 percent. What should be the current priceper share ofcommon stock?

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