Question 2 (13 marks) Ms. Jane Tong is planning her early retirement. Currently, Jane has $10,000,000...
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Question 2 (13 marks) Ms. Jane Tong is planning her early retirement. Currently, Jane has $10,000,000 in savings and plans to invest all the money into CBIC Corporation's shares. CBIC has just paid an annual dividend of $20 per share. It is expected that the company's dividend will grow by 10% per year for the next two years before settling at a constant 5% per year indefinitely. CBIC has a beta of 1.5. Given the riskfree interest rate is 4% and the market risk premium is 5%. (a) Compute the required return on CBIC shares using CAPM. (3 marks) (b) What are the expected dividends (D1, D2 and D3) for the following three years? (3 marks) (c) Given the required return in part (a), calculate the intrinsic value of one CBIC share. (5 marks) (d) How many shares of CBIC shares can Jane purchase today? (2 marks) Question 2 (13 marks) Ms. Jane Tong is planning her early retirement. Currently, Jane has $10,000,000 in savings and plans to invest all the money into CBIC Corporation's shares. CBIC has just paid an annual dividend of $20 per share. It is expected that the company's dividend will grow by 10% per year for the next two years before settling at a constant 5% per year indefinitely. CBIC has a beta of 1.5. Given the riskfree interest rate is 4% and the market risk premium is 5%. (a) Compute the required return on CBIC shares using CAPM. (3 marks) (b) What are the expected dividends (D1, D2 and D3) for the following three years? (3 marks) (c) Given the required return in part (a), calculate the intrinsic value of one CBIC share. (5 marks) (d) How many shares of CBIC shares can Jane purchase today? (2 marks)
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