Question $3(10$ marks$)$

$($a$)$ Given the following information:

Dividend at the beginning of the year $-$ P$60$

Annual growth rate of dividends $-3\%$

Required rate of return $-9\%$

Required:

Compute the current value of the equity stock. $(3)$

$($b$)$ The common stock of Thapelo Limited has a beta of $1\mathrm{.}4.$ The risk free rate on treasury bills is $6\%.$ The

return on the market portfolio is $15\%.$

Required:

$($i$)$ Compute the expected return for the stock using the Capital Asset Pricing Model. $(2)$

$($ii$)$ If the actual return of the stock was $17\%,$ determine whether the stock is overvalued, undervalued,

and correctly valued. $(2)$

$($c$)$ Mandy Company has an average age of inventory $($AAI$)$ of $60$ days, an average collection period $($ACP$)$

of $40$ days and an average payment period $($AAP$)$ of $35$ days.

Required

Calculate the firm's operating cycle and cash conversion cycle. $(3)$