• The Vertigo Company is an established European multinational automaker that has its main headquarters in Milan, Italy.
• It was founded by Dionigi Gerace and incorporated on September 6, 1960 and had ever since been selling automobiles and commercial vehicles under the Vertigo brand to the world. The UAE has been Vertigos loyal customer since the 1990s.
• You work as a financial analyst and have recently been placed onto an assignment with the Vertigo Company.
• Based on the recent financial information available for the firm, the Vertigo Company currently has 15,000 preferred shares and 25,000 common shares outstanding.
• Preferred shares sell for $14.80 per share and currently pay a DPS of $2.10, which is expected to stay constant for the life of the company.
• Common stocks trade for $27.40 per share and will pay a DPS of $3.80 next year, which is expected to grow at a constant rate of 3% in the future.
• The applicable risk-free rate reported by the Central Bank is 2%, and the companys beta is 1.1.

1. Using the Dividend Discount Model, calculate the rate of return on the firms COMMON equity. (1 point)

2. Using the Capital Asset Pricing Model, and given the market risk premium of 4%, calculate the rate of return on the firms COMMON equity. (1 point)

3. Relying on your results from both the Dividend Discount Model and the Capital Asset Pricing Model, calculate the average rate of return on the firms COMMON equity. (1 point)

4. Using the Capital Asset Pricing Model, and given the return on the market of 8%, recalculate the rate of return on the firms COMMON equity. (1 point)

5. Estimate the rate of return on the firms PREFERRED equity. (1 point)

6. If the company does not use any debt in its financing, determine the market value of the firms ASSETS. (2 points)

7. Write a note to the companys management, where you explain any two differences between COMMON or PREFERRED equity. (1 point)