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24 May, 06:42

tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. The expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Tangshan has a beta of 1.20.

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  1. 24 May, 10:22
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    Answer: Tangshans required rate of return according to CAPM = 3+1.2 * (8-3)

    R=9%

    Intrinsic Value = 5.5*1.05/0.09-0.05 = $144.375

    Stock is Overvalued as its intrinsic value is $144.375 but it is selling in the market for $160
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