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

question 19

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

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Definitions:

Triple Covalent

A type of chemical bond where three pairs of electrons are shared between two atoms.

Polar Covalent

A type of chemical bond where a pair of electrons is unequally shared between two atoms, causing a partial charge.

Lipids

A broad group of naturally occurring molecules that include fats, waxes, sterols, fat-soluble vitamins, and other components essential for cell structure and function.

Phospholipids

A type of lipid molecule that is a major component of all cell membranes, consisting of a phosphate head and two fatty acid tails.