You have been asked to conduct a valuation on behalf of a client who intends on liquidating
Question:
You have been asked to conduct a valuation on behalf of a client who intends on liquidating a number of his share positions.
EPS = 30.00
Plowback (b) = 0.47
Growth Years 1-5 = 0.25
Long-run Growth Rate = 0.04
Expected Inflation rate = 2%
Nominal risk-free rate is 5%
Nominal expected market return is assumed to be 12% (not the historical average)
You are also provided with the following one year of historical nominal monthly returns the market and Pepsico
Jan = Market (1.64%); Pepsico (1.62%)
Feb = Market (2.7%); Pepsico (2.87%)
March = Market (1.36%); Pepsico (4%)
April = Market (-0.99%); Pepsico (-1.14%)
May = Market (1.13%); Pepsico (-0.56%)
June = Market (-0.27%); Pepsico (-0.58%)
July = Market (-0.72%); Pepsico (-0.54%)
August = Market (-0.83%); Pepsico (-1.24%)
September = Market (2.86%); Pepsico (3.99%)
October = Market (-1.55%); Pepsico (-1.66%)
November = Market (-0.36%); Pepsico (0.59%)
August = Market (2.68%); Pepsico (2.81%)
Calculate the required rate of return for Pepsico using the CAPM.
Basic Marketing Research
ISBN: 978-1133188544
8th edition
Authors: Tom J. Brown, Tracy A. Suter, Gilbert A. Churchill