90.2K

Verified Solution

Link Copied!

Please attempt onlt if u know all the parts of the question. U may refer Principles of Managerial Finance BU506

CAPM Capital Asset Pricing Model Facts 11.0% The Current risk free rate is pa( ri rf 16.0% Market is providing a return of 1.50 Beta of Where Risk free rate 4.48 Expect to pay dividend per share next year of Pa Beta of the security rm Expected market return Recent History of Change this Change this Dividends per year in dollars year in percent Year Dividend 2015 4.19 2014 Calculator 4.01 Input Function 2013 3.59 2012 3.31 2011 3.15 2010 2.99 A) Calculate the constant growth rate: Solve for l Average annual growth rate in percent Do parts B, C and D, using the Capital Asset Pricing Model (CAPM): B) Determine the maximum cash price should pay for each share CAPM See CAPM Formula above D Dividend) D (Per Share Dividend) Expected r (Required Return) r (CAPM Rate) Growth rate) g(Growth rate) C) Determine the effect on stock price if a 3% higher growth rate than shown in history. CAPM See CAPM Formula above D (Per Share Dividend) Expected D (Dividend) r (Required Return) r (CAPM Rate) Growth rate) g(Growth rate) D) If facts are same as B) above but Beta has changed to 1.0, determine max. cash price per share CAPM See CAPM Formula above D Dividend) D (Per Share Dividend) Expected r r (Required Return) r (CAPMRate) g (Growth rate) g (Growth rate)

Answer & Explanation Solved by verified expert

See Answer