Currently, the treasury bond rate is 2.5% and the equity risk premium is 4.0%. LL Company...

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Currently, the treasury bond rate is 2.5% and the equity risk premium is 4.0%. LL Company is traded at $26.50. Below are some information about the company: P/E P/B P/S Profit margin on sales Trailing 12 month EPS Dividends per share ROE Beta 17.5 4.5 1.4 8.0% $3.0 $1.2 15.0% 1.25 (a) Determine LL Company's required rate of return based on the CAPM. (b) If the growth rates of dividends and earnings are 5%, what trailing P/E, P/B, and P/S multiples would be justified in light of the required rate of return determined in part (a) and the current values of profit margin, dividends per share, and ROE? (c) State and justify whether LL Company, based on the fundamentals, appears to be fairly valued, overvalued, or undervalued, given that the assumptions and constant growth model are appropriate. Currently, the treasury bond rate is 2.5% and the equity risk premium is 4.0%. LL Company is traded at $26.50. Below are some information about the company: P/E P/B P/S Profit margin on sales Trailing 12 month EPS Dividends per share ROE Beta 17.5 4.5 1.4 8.0% $3.0 $1.2 15.0% 1.25 (a) Determine LL Company's required rate of return based on the CAPM. (b) If the growth rates of dividends and earnings are 5%, what trailing P/E, P/B, and P/S multiples would be justified in light of the required rate of return determined in part (a) and the current values of profit margin, dividends per share, and ROE? (c) State and justify whether LL Company, based on the fundamentals, appears to be fairly valued, overvalued, or undervalued, given that the assumptions and constant growth model are appropriate.

Answer rating: 100% (QA)

a To determine LL Companys required rate of return based on the Capital Asset Pricing Model CAPM we need to calculate the cost of equity using the for... View the full answer