Your supervisor has asked you to evaluate the relative attractiveness of the stocks of two very similar chemical companies: Litchfield Chemical Corp. (LCC) and Aminochem Company (AOC). AOC and LCC fiscal year ends on the 30^th June. You have compiled the following data for this purpose.

Use a one-year time horizon and assume the following:

Real gross domestic product is expected to rise 5 percent;

JSE top 40 expected total return of 20 percent;

South Africa (SA) Treasury bills yield 5 percent;

30-year SA Treasury bonds yield 8 percent.

	LCC	AOC
Current stock price	R50	R30
shares outstanding	10 million	20 million
Projected earnings per share	R4	R3.20
Projected dividend per share	R0.90	R1.60
Projected dividend growth rate	8%	7%
Stock beta	1.2	1.4
Investor's required return	10%	11%
Long term debt	R100 million	R130 million
Stock holders' equity	R300 million	R320 million

a. Calculate the value of the common stock of LCC and AOC using the constant growth DDM. Show your work.

b. Calculate the expected return over the next year of the common stock of LCC and AOC using the CAPM. Show your work.

c. Calculate the internal (implied, normalized, or sustainable) growth rate of LCC and AOC. Show your work.

d. Recommend LCC orAOC for investment. Justify your choice using your answers to A, B, and C and the information in Table above.