Compute the expected net distributions to stakeholders

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Question - Assume you expect the company's net income to remain stable at $2000 for all future years, and you expect all earnings to be distributed to stockholders at the end of each year, so that common equity also remains stable for all years (this also assume a clean surplus). Also, assume the compnay's beta=1.2, the market on risk premium is 6% and 10-year yield on risk free government bonds is 3%. Finally, assume the company has 1000 ordinary shares outstanding.

a. Using CAPM to estimate the company's equity cost of capital?

b. Compute the expected net distributions to stakeholders (dividends) for each future year.

Reference no: EM132893738

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