Question 4 As part of the presentation to potential investors to seek funding, the CEO of TempoZoom would have to present the valuation of the business too. He has made the following estimates concerning the annual returns on the company's assets under possible economic conditions: Annual rate of returns (%) Probability Pessimistic 3.8 0.25 Most likely 7.5 0.5 Optimistic 9.2 0.25 a. Using the above annual returns distribution for the assets, calculate the following to 2 decimal places, where necessary i. Expected rate of return (2 marks) ii. Standard deviation (4 marks) iii. Interpret your result for the standard deviation (2 marks) 5 b. The founders of the company were recently paid a dividend of $2.65 for each unquoted shares held. The projected growth rate for dividends is 3.5% for the foreseeable future. Assuming the expected rate of return in (a)(i) is the investors' required rate of return, using the dividend discount method, calculate the value for each share price. (4 marks) c. You have suggested to the CEO that there is an alternative method to business valuation; using the Capital Asset Pricing Model (CAPM). You have gathered the following information on the market: 6-monthUS Treasury Bill rate is 0.28% The average S&P 500 index return for the past 10 years is 7.8% Equivalent industry beta is 1.25 i. Calculate the required rate of return of investors using the CAPM model. (3 marks) Using the required rate of return form (c)(i), calculate the value of each share (4 marks) ii. d. Critically discuss THREE advantage of using CAPM valuation over Dividend Discount valuation. (6 marks)