BunaBuna has been growing at a 15 percent annual rate and is expected to continue to do so for 3 more years. At that time, growth is expected to slow to a constant 4 percent rate. The firm maintains a 30 percent payout ratio, and this year's retained earnings net of dividends were R1.4 million. The firm's beta is 1.25, the risk-free rate is 8 percent, and the market risk premium is 4 percent.
If the market is in equilibrium, what is the market value of the firm's common equity (1 million shares outstanding)?
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This solution illustrates how to value a company's common equity.