Author Question: China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 12 ... (Read 48 times)

littleanan · **on:** Jul 10, 2018

China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 12 percent, and the required return on the market portfolio is 18 percent.

The company plans to pay a dividend of 2.45 per share in the coming year and anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2001-2003 period.

Estimate the value of China America Manufacturing's stock.

Question 2

Even if you are given a present value, a single future value, and a time period, solving for the rate of return, r, is still a trial-and-error process.

Indicate whether the statement is true or false.

sabina576 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

ks = 0.12 + 1.50 (0.18 - 0.12 )
= 0.21
Growth rate of dividends:
(2.32/2.10 )1/2-1= 0.0511
P0 = = 15.42

Answer to Question 2

Answer: FALSE
Explanation: r = (FV/PV)1/n - 1