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Barramundi Inc. stock is currently selling at $40 per share (its equilibrium price) given that the risk free interest rate is 8% and the equilibrium risk premium on the market portfolio is 6%. The firm's long run growth is expected to remain 7% per year forever. Last year's EPS were $4, and the dividend payout ratio is 50%. If beta increases by 50%, by how much will the stock price change? Assume all other factors remain constant.

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Solution Summary

Calculate the required rate on stock in this case.

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First calculate the required rate on stock
Last EPS=$4
DPR=50%
Last dividend paid = D0=$4*50%=$2.00
Growth rate ...

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