Suppose Pears, Inc. currently pays a dividend of $1.75 per share. T-bills are paying a 2.30% return and the market is anticipated to earn 10.40% per year. Pears has a beta of 0.75 and retains 55% of their earnings every year. Pears earnings and dividends are expected to grow 10.6% per year for the next three years, before settling at constant 4.2% growth forever after.
What is the cost of equity (market capitalization rate) for CB?
What is the value of CB shares today?
Suppose the stock is currently selling for $45. Should you invest in the stock?