You have assigned the following values to these three firms:
Price | Upcoming Dividend | Growth | Beta | ||||||||||||
US Bancorp | $ | 29.80 | $ | 3.20 | 8.80 | % | 1.59 | ||||||||
Praxair | 59.15 | 1.51 | 13.00 | 2.20 | |||||||||||
Eastman Kodak | 36.50 | 1.00 | 11.50 | 0.98 | |||||||||||
Assume that the market portfolio will earn 15.50 percent and the risk-free rate is 5.70 percent.
Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
CAPM:
1.
=5.70%+1.59*(15.50%-5.70%)
=21.28%
2.
=5.70%+2.20*(15.50%-5.70%)
=27.26%
3.
=5.70%+0.98*(15.50%-5.70%)
=15.30%
Constant growth model:
1.
=3.20/29.80+8.80%
=19.54%
2.
=1.51/59.15+13%
=15.55%
3.
=1.00/36.50+11.50%
=14.24%
You have assigned the following values to these three firms: Price Upcoming Dividend Growth Beta US...
You have assigned the following values to these three firms: Price Upcoming Dividend Growth Beta US Bancorp $ 29.80 $ 3.20 8.80 % 1.59 Praxair 59.15 1.51 13.00 2.20 Eastman Kodak 36.50 1.00 11.50 0.98 Assume that the market portfolio will earn 15.50 percent and the risk-free rate is 5.70 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
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