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Savod Beagle Beauties engages in the development, manufacture, and sale of a line of cosmetics designed to make your dog look
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Answer #1

a-1). Payout Ratio = Dividend / Earnings = $4.32 / $6.90 = 0.6261, or 62.61%

Sustainable Growth Rate = ROE * (1 - Payout Ratio) = 17% * (1 - 0.6261) = 6.36%

a-2). According to the CAPM,

Required Return = Risk-free Rate + [Beta * Market Risk Premium]

= 2.95% + [1.40 * 7.9%] = 2.95% + 11.06% = 14.01%

b). Share Price(2015) = [D(2015) * (1 + g)] / (r - g)

= [$4.32 * (1 + 0.0636)] / [0.1401 - 0.0636] = $4.59 / 0.0765 = $60.03

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