Rio National Corp. is a U.S.-based company and the largest competitor in its industry. Tables F-I present financial statements and related information for the company. Table J presents relevant industry and market data.

The portfolio manager of a large mutual fund comments to one of the fund€™s analysts, Katrina Shaar: €œWe have been considering the purchase of Rio National Corp. equity shares, so I would like you to analyze the value of the company. To begin, based on Rio National€™s past performance, you can assume that the company will grow at the same rate as the industry.€
a. Calculate the value of a share of Rio National equity on December 31, 2010, using the G ordon constant-growth model and the capital asset pricing model.
b. Calculate the sustainable growth rate of Rio National on December 31, 2010. Use 2010 beginning-of-year balance sheetvalues.

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Table F 2010 2009 Cash Accounts receivable Inventory Current assets Gross fixed assets Accumulated depreciation Net fixed assets Total assets Accounts payable Notes payable Current portion of long-term debt Current liabilities Long-term debt Total liabilities Common stock Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 13.00 30.00 209.06 $252.06 474.47 (154.17) 320.30 5572.36 25.05 $ 5.87 27.00 189.06 $221.93 409.47 (90.00) 319.47 $541.40 26.05 0.00 0.00 $ 26.05 245.00 $271.05 150.00 120.35 $270.35 $541.40 0.00 25.05 240.00 $265.05 160.00 147.31 $307.31 5572.36 Table IDividends paid (U.S. S millions) Weighted-average shares outstanding during 2010 Dividend per share Earnings per share Beta $3.20 16,000,000 $0.20 $1.89 1.80 Table J Risk-free rate of return 4.00% 9.00% Expected rate of return on market index Median industry price/earnings (P/E) ratio Expected industry earnings growth-rate 19.90 12.00%