What is the CAPM-implied discount rate of XYZ

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Question - Your analyst has collected the following data on XYZ. XYZ's stock is currently trading at $52.34 per share. Its earnings per share are $1.50 and its dividends per share are 0.35. The beta of XYZ is 1.50. The risk-free rate is 1.0% and the expected market return is 10%.

Required -

a) What is the plowback ratio?

b) What is the CAPM-implied discount rate of XYZ?

c) Which growth rate of dividends does the market incorporate according to the Gordon growth model?

(In other words, what should be the growth rate of the dividends that will justify the current stock price of XYZ?)

Reference no: EM132744033

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