Using capm and the gordon constant growth model

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Reference no: EM132031231

Consider the following for Snuggli Corporation.

• Snuggli’s price is $50

• Snuggli just paid an annual dividend of $3

• Snuggli’s projected growth rate for the foreseeable future is 8%

• Snuggli’s beta is 1.1.

• Risk-free rate is 3%

• Expected return for the market is 10% Calculate the following

a) Calculate Snuggli’s required rate of return, using CAPM.

b) Calculate Snuggli’s value, using CAPM and the Gordon constant growth model.

c) Compare Snuggli’s price to rice to Snuggli’s value from b) above.

d) Compare Snuggli’s Gordon return to Snuggli’s CAPM required rate of return from a) above

Reference no: EM132031231

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