Calculate the estimated return for each company

Assignment Help Financial Management

Reference no: EM132065544

As an equity analyst, you have derived the following information for the three companies listed.

Note: The estimated values are the present value of the future price and dividend at the end of the investment period

Company Current price (£) Estimated Estimated

price (£) dividend (£) Beta

A plc 20 23 0.50 1.2

B Plc 45 49 1.50 1.9

C plc 37 40 1.20 0.67

Required: (a) Based on the data in the table, calculate the estimated return for each company.

In the investment period, you expect the Risk free rate of return to be 6% and the Average market return to be 10% (b) Using the Capital Asset Pricing Model (CAPM) calculate the required return for each company.

(c) Based on your calculations in part (a) and part (b) advise whether you think the company’s shares are undervalued or overvalued.

(d) While the capital asset pricing model (CAPM) has been widely used to analyse shares and manage portfolios, it has also been widely criticized as providing too simple a view of risk. Critically assess the CAPM theory.

Reference no: EM132065544

Questions Cloud

Confidence interval for the population proportion : Lets say 500 appointment mapping requests are received, 197 of which were mapped to an office visit.

Explain what the calculation is saying : EPS analysis graph. PE ratio analysis. I want EPS analysis graph for the last 5 years or more and how does it look on a per year basis for both.

What is the yield to maturity of bond : The coupon rate is 3.50 percent, paid semiannually. What is the yield to maturity of this bond?

What is the test statistic : Consider a hypothesis test that uses a 0.05 significance level to test the claim that the majoirty (more than 50%) of adults use the alcoholic beverages.

Calculate the estimated return for each company : Based on the data in the table, calculate the estimated return for each company.

What percentage of the nursing home residents : What percentage of the nursing home residents had at least four falls in the last 24 months?

Compute the probability distribution function : (a) Compute the probability distribution function for P r(x = r), as r = 1..12.

What are the the independent and the dependent variables : What is an alternative (research) hypothesis and the null hypothesis that could be tested with the data in this table?

Analyze the audit report that the cpa firm issued : Analyze the audit report that the CPA firm issued. Ascertain the legal liability to third parties who relied on financial statements under both common.

User Account

All Pages