Question

You are forecasting the returns for PVC Company, a plumbing supply company, which pays a current dividend of $10. The dividend is expected to grow at a rate of 3 percent. You have identified two public companies, ABC and VJK that appear to be comparable to PVC. ABC has the same total risk as PVC and a beta of 1.2. VJK, in contrast, has a very different total risk but the same market risk as PVC. VJK’s beta is 0.75. The market risk premium is 5 percent and the risk-free rate is 1 percent.
a. Determine the required return for PVC using the appropriate beta.
b. Determine the price of PVC.



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  • CreatedFebruary 25, 2015
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