question d

c) Assuming that ROCE (return on common equity), g (the growth rate of the book value of common shareholders' equity) and re (the cost of equity capital) are constant, that markets are efficient, and: the company's dividend payout ratio d is 20%, g is 8%, the company's stock has an equity beta of 1.2, the risk free rate is 1% and the market risk premium is 6%, what is the ROCE priced into the market? (2 marks) d) Continuing with the information given in part (C), what will be the percentage effect on the stock's intrinsic value if: (i) the market risk premium increases to 7%; (ii) the market expectation of the dividend payout ratio changes to 50%; (iii) the market expectation of future ROCE changes to 9%? Try to explain the direction and magnitude of each change. (9 marks) ROCE -re Hint: you may wish to use the formula VE,' CSE 1+ re-g c) Assuming that ROCE (return on common equity), g (the growth rate of the book value of common shareholders' equity) and re (the cost of equity capital) are constant, that markets are efficient, and: the company's dividend payout ratio d is 20%, g is 8%, the company's stock has an equity beta of 1.2, the risk free rate is 1% and the market risk premium is 6%, what is the ROCE priced into the market? (2 marks) d) Continuing with the information given in part (C), what will be the percentage effect on the stock's intrinsic value if: (i) the market risk premium increases to 7%; (ii) the market expectation of the dividend payout ratio changes to 50%; (iii) the market expectation of future ROCE changes to 9%? Try to explain the direction and magnitude of each change. (9 marks) ROCE -re Hint: you may wish to use the formula VE,' CSE 1+ re-g