Question
China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 6 percent, and the required return on the market portfolio
China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 6 percent, and the required return on the market portfolio is 12 percent. The company just paid a dividend of $2.50 per share and anticipates that its future dividends will increase at an annual rate of 10 percent for years one through four. Starting in year 5 the Company anticipates the dividends will grow at a rate of 8 percent and this rate will continue indefinitely into the future.
The current market price of China America Manufacturing is $38 per share. Would you recommend buying the stock at this price? Explain
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