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You're forecasting the returns for Smith Company, a construction company, which pays a current dividend of $10. The dividend is expected to grow at a...
You're forecasting the returns for Smith Company, a construction company, which pays a current dividend of $10. The dividend is expected to grow at a rate of 3%. You have identified two public companies, ABC and DEF, which appear to be comparable to Smith Company. ABC has the same total risk as PVC and a beta of 1.2. VJK in contract has a very different total risk but the same market risk as Smith. VJK's beta is 0.75. The market risk premium is 5% and the risk-free rate is 1%.
a) Determine the required return for PVC using the appropriate beta
b) Determine the price of Smith
