This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
Step 1: Calculate the expected dividend for the next period (D_1). The current dividend (D_0) is \7.40, and the growth rate (g) is 5.2%. D_1 = D_0 (1 + g) D_1 = \7.40 (1 + 0.052) D_1 = \7.40 × 1.052 D_1 = \7.7848 Step 2: Calculate the required rate of return (E(R_i)) using the Gordon Growth Model. The current share price (P_0) is \62. P_0 = (D_1)/(E(R_i) - g) \62 = (\7.7848)/(E(R_i) - 0.052) 62 (E(R_i) - 0.052) = 7.7848 62 E(R_i) - 3.224 = 7.7848 62 E(R_i) = 7.7848 + 3.224 62 E(R_i) = 11.0088 E(R_i) = (11.0088)/(62) E(R_i) ≈ 0.17756 Step 3: Calculate the beta coefficient () using the Capital Asset Pricing Model (CAPM). The risk-free rate (R_f) is 10.25% (0.1025). The average market return (E(R_m)) is 16.90% (0.1690). E(R_i) = R_f + (E(R_m) - R_f) 0.17756 = 0.1025 + (0.1690 - 0.1025) 0.17756 = 0.1025 + (0.0665) 0.17756 - 0.1025 = (0.0665) 0.07506 = (0.0665) = (0.07506)/(0.0665) ≈ 1.1287 Rounding to two decimal places: ≈ 1.13 The beta coefficient of Nova Orbit Ltd. is 1.13$. 1.2 Since the calculated beta coefficient is approximately 1.13, which is greater than 1, Nova Orbit Ltd's ordinary shares are considered more volatile than the overall market. This indicates that the shares carry a higher systematic risk compared to the market. Send me the next one 📸