Cache Creek Manufacturing Company Is Expected to Pay a Dividend

question 1

Multiple Choice

Cache Creek Manufacturing Company is expected to pay a dividend of $3.36 in the upcoming year. Dividends are expected to grow at 8% per year. The risk-free rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalisation rate, and the constant growth DDM to determine the value of the shares. The share is currently priced at $84.00. Using the constant growth DDM, the market capitalisation rate is ________.

• A)9%
• B)12%
• C)14%
• D)18%

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Definitions:

Actual Costs

The real costs incurred in the production, acquisition, or realization of goods and services, as opposed to estimated or standard costs.

Direct Materials Price Variances

The difference between the actual cost of direct materials and the standard cost, used to measure cost management efficiency.

Quantity Variances

Differences between the expected and the actual amount of materials, labor, or overhead used in production.

Standard Costs

Predetermined costs to manufacture a single unit or a number of units of a product during a specific period.