Hanson PLC (LSE: HNS) is selling for GBP 472. Hansen has a beta of 0.83 against...

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Hanson PLC (LSE: HNS) is selling for GBP 472. Hansen has a beta of 0.83 against the FTSE 100 index, and the current dividend is GBP 13.80. The risk-free rate of return is 4.66 percent, and the equity risk premium is 4.92 percent. An analyst covering this stock expects the Hanson dividend to grow initially at 14 percent but to decline linearly to 5 percent over a 10-year period. After that, the analyst expects the dividend to grow at 5 percent. a. Compute the value of the Hanson dividend stream using the I-model. According to the II-model valuation, is Hanson overpriced or underpriced? b. Assume that Hanson's dividends follow the H-model pattern the analyst predicts. If an investor pays the current GBP 472 price for the stock, what will be the rate of return? Hanson PLC (LSE: HNS) is selling for GBP 472. Hansen has a beta of 0.83 against the FTSE 100 index, and the current dividend is GBP 13.80. The risk-free rate of return is 4.66 percent, and the equity risk premium is 4.92 percent. An analyst covering this stock expects the Hanson dividend to grow initially at 14 percent but to decline linearly to 5 percent over a 10-year period. After that, the analyst expects the dividend to grow at 5 percent. a. Compute the value of the Hanson dividend stream using the I-model. According to the II-model valuation, is Hanson overpriced or underpriced? b. Assume that Hanson's dividends follow the H-model pattern the analyst predicts. If an investor pays the current GBP 472 price for the stock, what will be the rate of return?

Answer rating: 100% (QA)

A B The required rate of return for Hanson is r RFBER... View the full answer