Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect the firm's dividends to grow by 4% forever. Its stock price is $35.1 and its beta is 1.5. The risk-free rate is 2% and the market risk premium is 4.5%. A. What is the best guess for the cost of equity? Recall that both Dividend Growth Model and CAPM can be used to find cost of equity. Here assume the best guess is the simple average of the tw

You have assigned the following values to these three firms: US Bancorp Praxair Eastman Kodak Price $34.55 37.80 50.35 Upcoming Dividend $ 2.35 1.36 2.00 US Bancorp required return Praxair required return Eastman Kodak required return Growth CAPM 6.20% Assume that the market portfolio will earn 13.30 percent and the risk-free rate is 6.00 percent. Compute the required return for each company using both CAPM and the constant-growth model. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. 0.18 X % 0.24 X % 0.11 % 13.50 13.80 X Answer is complete but not entirely correct. Beta 1.67 2.49 0.64 Constant-Growth Model 0.16 X % 0.18% 0.17

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 36.5%, and the current dividend yield is 8.50%. Its beta is 1.33, the market risk premium is 14.50%, and the risk-free rate is 2.70%. a. Use the CAPM to estimate the firm's cost of equity. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. Now use the constant growth model to estimate the cost of equity. Note: Do not round intermediate calculations. Enter your answer as a whole percent. c. Which of the two estimates is more reasonable? a. Cost of equity % % c. Which of the two estimates is more reasonable? b. Cost of equity

A stock is currently selling for $40. The expected dividend is $2.  This is a constant growth firm.  If investors require a return of 15% on this stock, what do they think the growth rate will be?

Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 38.5%, and the current dividend yield is 10.50%. Its beta is 1.37, the market risk premium is 16.50%, and the risk-free rate is 2.30%.   a. Use the CAPM to estimate the firm’s cost of equity. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)           b. Now use the constant growth model to estimate the cost of equity. (Do not round intermediate calculations. Enter your answer as a whole percent.)

Your required rate of return is 15%.  Z Corp. is currently paying a dividend of $2.55.  If the expected constant growth rate is 8%. What is the maximum you should pay for this stock?

Consider two firms, Rosehill Corporation and Purwell Industries that are each expected to pay the same $2.5 million dollar dividend every year in perpetuity. Rosehill Corporation is riskier and has an equity cost of capital of 15%. Purwell Industries is not as shaky as Rosehill, so Purwell has an equity cost of capital of only 10%. Assume that the market portfolio is not efficient. Both stocks have the same beta and an expected return of 13%.   The alpha for Rosehill is closest to:       3%     -3%     -2%     2%

Castle-in-Sand generates a rate of return of 20% on its investments and maintains a plowback ratio of 0.30. Its earnings this year will be $4 per share. Investors expect a 12% rate of return on the stock.   Required: (a.)       Find the price and P/E ratio of the firm. (b.)       What happens to the P/E ratio if the plowback ratio is reduced to 0.20? Why? (c.)       Show that if plowback equals zero, the earnings-price ratio, E/P, falls to the expected rate of return on the stock.

Jersey Jewel Mining has a beta coefficient of 1.1. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $5.40 dividend that is growing at 4 percent annually. Do not round intermediate calculations. a. What is the required return for JJM? Round your answer to two decimal places. % b. Given the required return, what is the value of the stock? Round your answer to the nearest cent. $ c. If the stock is selling for $138, what should you do? The stock -Select- overvalued and -Select- ✓ be purchased. d. If the beta coefficient declines to 0.9, what is the new value of the stock? Round your answer to the nearest cent. $ e. If the price remains $138, what course of action should you take given the valuation in d? The stock is -Select- and -Select- ✓ be purchased.

Jersey Jewel Mining has a beta coefficient of 1.3. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $5.30 dividend that is growing at 6 percent annually. Do not round intermediate calculations.   What is the required return for JJM? Round your answer to two decimal places.     %   Given the required return, what is the value of the stock? Round your answer to the nearest cent.   $     If the stock is selling for $166, what should you do?   The stock -Select-isis notItem 3 overvalued and -Select-shouldshould notItem 4 be purchased.   If the beta coefficient declines to 1.2, what is the new value of the stock? Round your answer to the nearest cent.   $     If the price remains $166, what course of action should you take given the valuation in d?   The stock is -Select-overvaluedundervaluedItem 6 and -Select-shouldshould notItem 7 be purchased.