Company ABCs beta is 1.2. The estimated market risk premium is 8% per annum and the risk-free rate is 4% per annum. The company recently paid a dividend per share of $1.00. It is expected that company can maintain a dividend growth of 15% a year for the next 3 years. Given an in-depth analysis, it comes to term that the growth rate will decline to 5% per annum and remains at that level indefinitely.

1. Using multistage dividend discount model and the information provided above, calculate current price of the share
2. Suppose the companys ROE is the same and the company is expected to increase payout ratio after three years, what will be the impact on companys sustainable growth?

(b)

Consider two firms producing personal protective equipment (PPE). One uses a highly automated robotics process, whereas the other uses workers on an assembly line and pays overtime when there is a heavy production demand. All else being equal,

3. which firm will have higher profit in a recession? In a boom?
4. which firms stock will have higher fixed cost and a higher beta?