China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 12 percent, and the required return on the market portfolio is 18 percent
The company plans to pay a dividend of $2.45 per share in the coming year and anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2001-2003 period.
Estimate the value of China America Manufacturing's stock.
ks = 0.12 + 1.50 (0.18 - 0.12 )
= 0.21
Growth rate of dividends:
(2.32/2.10 )1/2-1= 0.0511%
P0 = = $15.42
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