Homework Answers
a
Plowback = 1-DPS/EPS = 1-0.16/0.97 = 0.83505
b
| As per CAPM |
| expected return = risk-free rate + beta * (expected return on the market - risk-free rate) |
| Expected return% = 1.2 + 2.04 * (9.5 - 1.2) |
| Expected return% = 18.13 |
| Price = recent dividend* (1 + growth rate )/(cost of equity - growth rate) |
| 26.52 = 0.16 * (1+Growth rate) / (0.1813 - Growth rate) |
| Growth rate% = 17.42 |
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