Cache Creek Manufacturing Company Is Expected to Pay a Dividend

question 40

Multiple Choice

Cache Creek Manufacturing Company is expected to pay a dividend of $4.20 in the upcoming year. Dividends are expected to grow at the rate of 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 on the shares, and the constant growth DDM to determine the intrinsic value of the shares. The shares are trading in the market today at $84.00. Using the constant growth DDM and the CAPM, the beta of the shares is ________.

• A)1.4
• B)0.9
• C)0.8
• D)0.5

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity of it that consumers are willing and able to purchase at any given price.

Expectations

The anticipations of consumers, firms, and others about future economic conditions, which can influence their decisions today.

Prices

The amount of money required to purchase goods, services, or assets.

IBM Personal Computers

refers to the series of personal computers produced by IBM since 1981, marking the start of the PC era.