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Copy of 297598-finance-stock+valuation

Copy of 297598-finance-stock+valuation - Thames Inc's most...

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First we will use CAPM (Capital Asset Pricing Model) to get the required return on the s CAPM (Capital Asset Pricing Model) equation is: risk free rate= 5% beta of stock= 1.3 return on market portfolio= 9% required return on stock to be determined Plugging in the values r A = 10.2 % =5.%+1.3*(9.%-5.%) Then we will use the Dividend Discount Model to get the price of the stock Using the Dividend Discount (Constant Growth) Model $2.40 Dividend will grow at 6% for the next year Dividend for next year= 2.54 =(1+6.%) *2.4 Cost of equity= r= 10.2 % (Calculated above)
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