Question: Finance question. please explain 2. Your uncle own a company Bob Co., that sells food products. a) The risk-free rate is currently 3%, and the

Finance question.

please explain

Finance question. please explain 2. Your uncle own a company Bob Co.,

2. Your uncle own a company Bob Co., that sells food products. a) The risk-free rate is currently 3%, and the market premium is currently 8%. Bob Co. has a beta of 1.5. Using the CAPM, what is the appropriate discount rate for Bob Corp.? b) Bob Corp. has an ROE of 10% and a plowback ratio of 60%. What is Bob Co's growth rate? There is an announcement this morning that scientists at Bob Co. have just successfully patented a new invention: an anti-CDVID soup. It is not yet known whether this invention will be marketable or not, and the future prospect of the company will depend on this. There are four possible scenarios, each yielding a different growth rate for the company: i) Incredible Success: The company will grow at 14.9% forever ii] Nearly Incredible Success: The company will grow at 12% forever iii] Minimal Success: The company will grow at 3% forever iv) No Marketability: The company no longer grows [its growth rate will be zero forever] There is a 10% chance of scenario [i] and a 30% chance of each of the others occurring. The company's beta is constant at 1.5 across all scenarios. c) What is Bob Co's expected future growth rate? d] If Bob Co's next period's dividend is $1 per share, what is the price per share after the morning announcement? e) The same afternoon, it is announced that scenario (ii) has occurred, and Bob Co will grow at 12% forever. What is the new price per share? Explain the stock market's reaction to the afternoon announcement

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