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Answered Same Day Dec 23, 2021

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David answered on Dec 23 2021

120 Votes

The financial data from the information document was used to record the following values for XYZ Company:
1. XYZ’s Beta (ß): 1.64
2. XYZ’s cu
ent annual dividend: $0.80
3. XYZ’s 3-year dividend growth rate (g):8.20%
4. Industry P/E: $23.2
5. XYZ’s EPS: $4.87
The “U.S.10 year Treasury” bond rate is 2.00% which is used to get risk free rate. The assumed market risk premium is 9%.
With the information mentioned above, CAPM model is used to calculate the required rate of return (ks)
ks = Rf + (ß)* (Rm-Rf)
Where:
ks = required rate of return
Rf = Risk free rate of return, measured by U.S. treasury bill return = 2.00%
(ß) = index for non diversified risk
= 1.64
Rm-Rf= Return on market portfolio of risk
= 9%
Calculation:
ks = 2.00%+ 1.64*9%
= 2.00%+ 14.76
= 16.76%
Using Constant Growth Model (CGM) cu
ent stock...

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