Calculate the expected rate of return of csl ltd

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Reference no: EM132643420

CSL Ltd is considering issuing additional ordinary shares to raise capital for developing and manufacturing a Covid-19 vaccine. The company is expected to pay a dividend of $0.50/share at the end of year 4 and dividends will grow at a constant rate of 3% per annum forever. CSL Ltd has a beta of 1.5. Long-term treasury bonds are yielding 4% per annum and the long-term return of the ASX200 (i.e. the market portfolio) is 10% per annum.

a) Using the Capital Asset Pricing Model, calculate the expected rate of return of CSL Ltd.

b) What is the implied value of one of the issued ordinary shares?

c) If CSL Ltd intends to sell the ordinary shares at $4/share, would you purchase it? Briefly explain why?

d) CSL Ltd is also considering to issue some preference shares for those risk-averse investors. Briefly explain why ordinary shares are riskier than preference shares.

Reference no: EM132643420

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