Problem:
Zombie Manufacturing Company is expected to pay a dividend of $4.71 in the upcoming year. Dividends are expected to grow at 6.4% per year. The risk-free rate of return is 2.2%, and the expected return on the market portfolio is 9.6%. Investors use the CAPM to compute the market capitalization rate and use the constant-growth dividend discount model to determine the value of the stock. The stock's current price is $86.
Required:
Question: What is your estimate for the market capitalization rate of this asset?
Note: Explain all steps comprehensively.