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Your task is to value Shake Shack's (SHAK’s) stock. Shake Shack's next dividend (i.e., the dividend...

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Finance

Your task is to value Shake Shack's (SHAK’s) stock. ShakeShack's next dividend (i.e., the dividend at t =
1) is expected to be $3.25. Across years 2 and 3 and 4, dividendswill grow by 7%/year. After that, dividends
are projected to grow at a constant rate of 3% forever. SHAK has adebt-to-equity ratio (in market-value
terms) of 1.0. The yield to maturity on SHAK's bonds averages 4%and the company's tax rate is 30%. If the
risk-free rate is 2.2%, the market risk premium is 6%, and SHAK'sequity beta is 1.25, what should the stock
sell for today based on a discounted valuation of its projecteddividends?

Answer & Explanation Solved by verified expert
4.4 Ratings (709 Votes)
Required rateof return of Shaks stock under CAPMWhereKe Cost of equity Required rate ofreturnrf    See Answer
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