Question
3. What price can Carem expect for issuing new shares? Ms.Raymar is comfortable with using constant-growth DDM/DGM, but wants r (required return/cost of equity) to
3. What price can Carem expect for issuing new shares? Ms.Raymar is comfortable with using constant-growth DDM/DGM, but wants r (required return/cost of equity) to be estimated using DDM/DGM and CAPM (i.e. somewhere in the range established by the two alternative methods, and support your selection). (Note: For purposes of calculating r using DDM/DGM, year 1 is 2021. For purposes of calculating share price using DDM/DGM, year 1 is 2022. The reason is that the recent share price is based on 2021 dividends, but prospective share price will be based on 2022 dividends.)
4. If Carem increased their dividends by an additional 5% annually, could they issue fewer shares to raise the $3 million of equity? If so, how many fewer shares? Explain. (Note: You do not need to consider the impact that a higher dividend would have on growth due to lower reinvestment in the business.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started