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Consider two firms, AD and RK , that are each expected to pay the same $3.2 million dividend every year in perpetuity. AD Corporation is
Consider two firms, AD and RK, that are each expected to pay the same $3.2 million dividend every year in perpetuity. AD Corporation is riskier and has a cost of capital of 17%. RK is not as shaky as AD, so RK has a cost of capital of only 11%. Assume that the market portfolio is not efficient. Both stocks have the same beta and CAPM would assign them both an expected return of 12%. What is The The alpha for for AD Corporation
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