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Clove Ancillary Ltd. owns several big box stores in shopping centres throughout Australia. Each store has two divisions: White Goods and Computers. You have the following information about Clove Ancillary Ltd.:
White Goods Division: Market value of net assets = $3billion, asset beta = 1.2. Computer Division: Market value of net assets = $5billion, asset beta = 1.8.
Clove Ancillary has debt outstanding with a market value of $2billion and a market yield of 3%. This debt has a beta of zero.
Clove Ancillary has 100million outstanding common shares. The most recent dividend was per share. Analyst consensus forecasts indicate that this level of dividend payment should continue without growth indefinitely.
The risk free interest rate is 3% per annum and the required return on the market portfolio is 9% per annum. Clove Ancillary faces a 30% corporate tax rate.
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