Praxair's Upcoming Dividend Is Expected to Be $2

Multiple Choice

Praxair's upcoming dividend is expected to be $2.25 and its stock is selling at $65. The firm has a beta of 0.8 and is expected to grow at 10% for the foreseeable future. Compute Praxair's required return using both CAPM and the constant growth model. Assume that the market portfolio will earn 10 percent and the risk-free rate is 3 percent.

A) CAPM: 8.6%; Constant Growth Model: 13.46%
B) CAPM: 9.7%; Constant Growth Model: 12.56%
C) CAPM: 10.1%; Constant Growth Model: 11.46%
D) CAPM: 8.2%; Constant Growth Model: 9.56%