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Using CAPM's formula,
Return on equity = Risk-free rate + Beta*(Expected market return - risk-free rate)
With the given information,
Return on equity = 1% + 1.7*(9% - 1%) = 14.60%
Hence SuperSoft stock's expected return on the projected investment is 14.60%. With the DDM formula,
P0 = D1/(Ke - g)
With the given information and that calculated using CAPM,
$100 = $1/(14.60% - g)
14.60% - g = 1%
g = 14.60% - 1%
g = 13.60%
Thus the implied growth rate for this stock is 13.6%
Refer to Note 8, Securitization Transactions (pp. 78-80) and an extract from Note 2, Additional Balance Sheet and Cash Flow Information (p. 72-73) from the Consolidated Financial S
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At current the working capital cycle is Receivables days $0.4m/$10m * 365 = 15 days Inventory days $0.7m/$8m * 365 = 32 days (cost of sales = $10m - $2m) Payables days $1.
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