a) Estimate the Cost of equity , using the CAPM return. Assume the market risk premium, Rm-Rf=6%,
Question:
a) Estimate the Cost of equity, using the CAPM return. Assume the market risk premium, Rm-Rf=6%, and use the current 10-year Government bond yield for the risk-free rate.
b) DPS is the total annual dividend per share paid for the financial year. Based on the previous 5-year pattern of DPS payments, estimate the intrinsic values using 1-stage models (the constant dividend growth model), and the 2-stage non-constant dividend growth model. Please use the 10-year Government bond yield as the Dividend growth rate in the equilibrium stage. You need to choose which model is the most appropriate one to use, and compare the intrinsic value versus the share price as of June 2019 ('current price'). Would you recommend to buy or sell the shares in June 2019?
c) The alternative method is the Reward-to-Risk Ratio (RRR) method, where you would compare the RRR versus the Market Risk Premium. In RRR computations, Analyst Expected Return is computed based on median 12-month target price and dividend per share as a fraction of current price (as of Jun. end 2019). The median target price for your company is available from Bloomberg.
Expert Answer:
Intrinsic Value Estimation and Investment Recommendation Based on the provided information heres the analysis and recommendation a Cost of Equity RiskFree Rate RFR Using the current 10year Government ... View the full answer
Entrepreneurial Finance
ISBN: 978-1305968356
6th edition
Authors: J. Chris Leach, Ronald W. Melicher
