Question
1) You have been analyzing a firm, CLT, in the apparel industry. You expect that CLT will pay a dividend of $2/share next year, and
1) You have been analyzing a firm, CLT, in the apparel industry. You expect that CLT will pay a dividend of $2/share next year, and that its dividend will grow at 5% per year after that. CLT has a debt-to-equity ratio of 1.5. Analysis of comparable firms indicates that the asset beta for CLT is 0.5. The expected return on the market is 8%, the risk free rate is 3%, and returns on CLT's debt are uncorrelated with the market. According to your analysis, what should be CLT's price per share today?
Answer choices:
$53.83
$31.98
$47.06
$70.56
$64.17
2) A firm has two divisions that manufacture different products. Division 1 has an asset beta of 1.5 and a value of $100 million. Division 2 has an asset beta of 1.1 and a value of $50 million. The firm is entirely equity financed (i.e., has zero debt). What must be its equity beta?
Answer choices:
1.48
1.22
1.17
1.37
1.28
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