User Account

All Pages

Calculate the required rate of return for grips tool

Assignment Help Finance Basics
Reference no: EM132551190

Mr Steven is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips paid cash dividends of $1.55 per share. Grips' earnings and dividends are expected to grow at 10% per year for the next 3 years, after which they are expected to grow at 6% per year to infinity. Market data indicates a beta of 1.5 for Grips Tool. The expected risk premium on market portfolio is 5%.

You are required to;

(i) Calculate the required rate of return for Grips Tool's shares using the CAPM assuming a risk-free rate of 4.5%.

(ii) What is the maximum price per share that Steven should pay for Grips Tool's ordinary shares?

(iii) If Grips Tool's ordinary shares are traded in the market at $29.38 what would be your recommendation to Steven? Justify your answer.

(iv) List briefly explain the main limitation of the dividend valuation model as a share valuation method.

Reference no: EM132551190

Questions Cloud

What is the incremental free cash flow : A firm is considering a new project. If the project goes ahead, it will require the use of an existing warehouse owned by the company. If the project
Which is most likely to be associated with the symptoms : Turnover and a longer average collection period for accounts receivable. Which of the following is most likely to be associated with these symptoms?
Standard deviation of the risky portfolio : If the standard deviation of the risky portfolio is 20%, numerically prove that both Mr. X and Mr. Y are on the same CAL .
Determine the actual fixed overhead : Determine the actual fixed overhead, actual variable overhead, actual machine hours worked, standard machine hours allowed for actual production
Calculate the required rate of return for grips tool : Calculate the required rate of return for Grips Tool's shares using the CAPM assuming a risk-free rate of 4.5%.
What is the company interest coverage ratio : Assuming that Ferez's corporate tax rate is 30%, what is the company's interest coverage ratio? In 2020, Ferez Inc. (Ferez) earned a gross profit of 40%
What was chen return on equity for the year : What was Chen's return on equity (ROE) for the year? Chen's Salons Inc. (Chen) net income for 2020 was $79,500. Chen's return on assets (ROA)
What is the break-even point in dollar sales : The variable cost per unit is $ 18.23, Poseidon swim has average fixed costs per year of $37,994. What is the break-even point in dollar sales?
What adjustment is made for underapplied overhead : What adjustment is made for underapplied overhead on the schedule of cost of goods sold? What adjustment is made for overapplied overhead?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd