Estee Lauder's Upcoming Dividend Is Expected to Be $0

question 3

Multiple Choice

Estee Lauder's upcoming dividend is expected to be $0.65 and its stock is selling at $45. The firm has a beta of 1.1 and is expected to grow at 10 percent for the foreseeable future. Compute Estee Lauder's required return using both CAPM and the constant growth model. Assume that the market portfolio will earn 11 percent and the risk-free rate is 4 percent.

• A) CAPM: 11.2 percent; Constant Growth Model: 10.97 percent
• B) CAPM: 11.7 percent; Constant Growth Model: 11.44 percent
• C) CAPM: 10.1 percent; Constant Growth Model: 11.46 percent
• D) CAPM: 9.2 percent; Constant Growth Model: 9.56 percent

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Definitions:

AIG

American International Group, Inc., a multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions.

Liquidated Debt

A debt for which the exact monetary value has been determined and acknowledged by all parties involved.

Accord And Satisfaction

Accord and Satisfaction is a legal agreement between parties to settle a dispute by agreeing on a payment that is different from what was originally owed.

Unliquidated Debt

A debt for which the exact amount has not been determined.