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Detailed Explanation to Stock Value

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The Joe Company is experiencing financial difficulties. Its dividends and earnings are falling at a constant rate of 7% per year. Its stock just paid an annual common stock dividend of $1.50 per share; the stock has a beta of 0.45; the three-month U.S. Treasury bill rate is 4.8%, and the market risk premium is 7%. What's the value of The Joe Company's stock?

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Solution Summary

A detailed explanation to stock value is given for a company experiencing financial difficulties.

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First we will find cost of equity:

Ke = Rf+b(Km-Rf) 7.95%

Ke= Cost of Equity ...

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