3.6. Macmillan Company has the same growth rate as Chamberlain Corporation. The

Question

3.6. Macmillan Company has the same growth rate as Chamberlain Corporation. The current stock price of Macmillan is $50 a share, and its dividend this year is $4. The riskless rate is 5% and the expected return on the market is 13%. Chamberlain stock is selling at $60 a share. Its dividend next year will be $3 a share and its is 1.6. Find the of Macmillan stock.

( = 2.103) --- >>> (ANSWER IS INDICATED FOR GUIDANCE) I NEED SOLUTIONS! THANKS!!!

NOTE: PLEASE HAVE ALL ANSWER IN WORD OR EXCEL FORMAT(EDITABLE FORMAT). NO IMAGE ATTACHMENT, PLEASE!

Explanation / Answer

Chamberlain Stock

Beta = 1.60

Rf =5%

Rm=13%

Ke = Rf + (Rm-Rf)xbeta

      = 5% +( 13%-5%)x1.60

      =17.80%

P = D1/(Ke-g)

60= 3/(0.178-g)

0.178 –g = 0.05

G= 0.178-0.05

G= 12.80%

Hence growth rate is 12.80%

Macmillan Stock

P = D(1+g)/(Ke-g)

50 = 4(1+0.128)/(Ke- 0.128)

11.0816 = 1/(Ke- 0.128)

Ke = 0.08256 + 0.128

Ke= 21.06%

Ke = Rf +(Rm-Rf)xbeta

21.06% = 5% +(13%-5%)xbeta

Beta = 16.06%/8%

Beta =2.075

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