Estimate the required rate of returns using CAPM

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Reference no: EM131984298

Suppose that the risk –free return is 4.5%, the market risk premium is 6.155% and the beta value of the shares in DC, a small company listed on the Dubai stock market is 1.057. The most recent annual (2015) dividend payment of DC, a rapidly growing manufacturing company was $2.50 per share. The firm’s financial manager expects that these dividends will increase at 8% annual rate over the next three years. At the end of three years (the end of 2018), the firm’s is expected to result in a slowing of the dividend growth rate to 4% per year for the foreseeable future.

Required:

Estimate the required rate of returns using CAPM.

Estimate the value of DC’s shares.

State clearly any limitations and assumptions that you made in your calculations.

Reference no: EM131984298

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