Happy Feet Shoe Co. paid a dividend of $5.73 on its common stock at the end of last year. This company's dividends are expected to grow at a constant rate of 2% indefinitely. If the firm's beta is 1.29, the risk free rate is 6, and the market risk premium is 17, what is the value per share of Happy Feet's stock

$23.43

Explanation:

To calculate the value of the share, first we need to calculate the required rate of return

Capital asset pricing model measure the required return on an asset or investment. it is used to make decision for addition of specific investment in a well diversified portfolio.

Formula for CAPM

Expected return = Risk free rate + beta ( market risk premium )

Er = Rf + ( Mrp )

By placing values in the formula

Er = 6% + 1.29 ( 17% )

Er = 5% + 21.93%

Er = 26.93%

Dividend Valuation method is used to value the stock price of a company based on the dividend paid, its growth rate and rate of return. The price is calculated by calculating present value of future dividend payment.

Value of Share = Dividend ( 1+growth rate ) / (Rate of return - Growth rate)

P0 = D0 ( 1+g ) / (r - g )

By placing values in the formula

P0 = $5.73 ( 1+2% ) / (26.93% - 2% )

P0 = $5.84 / 24.93%

P0 = $23.43

answer: in the short-run firms will respond by raising the price of turkey.

explanation: initially the long-run equilibrium is at a price of $5 per pound of turkey and a quantity of 50 million pounds per year. now, when webmd claims that a protein found in turkey will increase your expected lifespan by 4 years. the consumers demand for turkey will increase at every price shifting the demand curve to the right from d1 to d2. while, there will be no change in the supply curve in the short-run as it is not possible for producers to adjust supply so quickly. as a result the new equilibrium will occur at a higher price and a higher quantity of turkey.

thus, in the short run firms will respond by increasing the price of turkey, selling more quantity at a higher price and earning economic profits.