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Show all your workings when calculations are required and round off your FINAL result to TWO decimal places.
Westfield is a listed company with a beta of 1.3, a current share price of $8 and an EPS of $8. It is expected to pay a dividend of $1/share at the end of year 3 and dividends will grow at a constant rate of 3% per annum forever. The long-term return of the ASX200 (i.e. the market portfolio) is 8% p.a. and the market risk premium is 5% p.a. Eastfield is a competitor company with a share price of $10 and an EPS of $20.
a) Using the P/E ratio, identify the company with cheaper shares and briefly explain why. Ignore risk.
b) Using CAPM, calculate the expected rate of return of Westfield.
c) What is the implied value of a Westfield share today?
d) Given the current share price of Westfield, would you purchase it and why?
Assuming Sales Price per unit = $15, develop a spreadsheet model to calculate the break-even point using the above. Design your spreadsheet using effective spreadsheet-engineering principles.
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Based on the following information about GEN common stock,
A stock has an expected return of 15 percent, its beta is 1.50 percent and the expected return on the market is 12 percent. What is the risk-free rate?
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A 10-year bond, with a par value equaling $1,000, pays 7% annually. If similar bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-annual analysis.
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