Hilal Steel Company wishes to determine the value of Craft Foundry, a firm that it is considering
Question:
Year.............................Dividend per share
2012.........................................US$3.44
2011..............................................3.28
2010..............................................3.15
2009..............................................2.90
2008..............................................2.75
2007..............................................2.45
a. Given that Craft is expected to pay a dividend of US$3.68 next year, determine the maximum cash price that Hilal should pay for each share of Craft.
b. Discuss the use of the CAPM for estimating the value of common stock, and describe the effect on the resulting value of Craft of:
(1) A decrease in its dividend growth rate of 2 percent from that exhibited over the 2007-2012 period.
(2) A decrease in its beta to 1.
Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For
Principles of Managerial Finance
ISBN: 978-1408271582
Arab World Edition
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix
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