选项B

问题如下：

Manika and Barkada reach an agreement in which Manika will acquire 100% of Barkada for $300 million in cash and 10 million Manika common shares. Prior to the acquisition, Manika had 162 million outstanding shares.

To estimate Manika's new cost of equity after the acquisition, Pascua considers using the DDM, the global CAPM, or the Grinold–Kroner model. She assesses which model is the most appropriate to use on the basis that Manika has been paying consistent but very low dividends. Both Manika and Barkada operate in a developing country where the stock market is not a large portion of the economy.

Which model is most appropriate for estimating Manika’s new cost of equity?

选项：

A.

DDM

B.

Global CAPM

C.

Grinold–Kroner model

解释：

A is correct because the DDM only requires that the company’s shares be publicly traded and that the company pays dividends that are stable and predictable. Those conditions are met by Manika. First, it is a public company as implied by the phrase based on the unaffected share price prior to the agreement in the vignette. Second, it pays consistent dividends. Very low dividends will simply translate to a low cost of equity based on the DDM.

B is incorrect because in the global CAPM (GCAPM), where a global market index is the single factor, there are no assumed significant risk differences across countries. The issue is that a likely result is a low, or even negative, slope coefficient because of the correlation between emerging and developed market returns being quite low in general.

If the company’s operations are global, but limited to developed countries, the GCAPM and ICAPM are reasonable methods to apply. If however, the company’s operations extend to developing countries, the methodology is less clear. Both Manika and Barkada operate in a developing country where the stock market is not a large portion of the economy. Hence, the Global CAMP is not appropriate.

C is incorrect because the Grinold-Kroner model is not appropriate for estimating the ERP in a developing country where the stock market is not a sufficiently large portion of the economy.

ERP estimates derived from macroeconomic models such as the Grinold–Kroner model, rely on a number of forecasted economic variables such as inflation and expected growth in real earnings per share. Using relationships between macroeconomic and financial variables in equity valuation models, analysts can develop ERP estimates. These models might be more reliable when public equities represent a relatively large share of the economy, as in many developed markets.