Metro enterprises has a beta of 1.20, the risk free rate of return is currently —– (consider the current rate of treasury bills that is 0.0775) and the market return is 14%. The company, which plans to pay a dividend of Rs 2.60 per share in the coming year (2007) anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2002- 2006 period, when the following dividends were paid.
|
Year |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
|
Div. per share |
1.73 |
1.80 |
1.82 |
1.95 |
2.10 |
2.28 |
2.45 |
Required:
- Use the capital asset pricing model to determine the required return on Metro stock.
- Using the constant growth model and your finding in part a), estimate the value of company stock.
