percent growth rate forever. The stock currently sells t A 3.20 percent 3.62 per
ID: 2614394 • Letter: P
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percent growth rate forever. The stock currently sells t A 3.20 percent 3.62 percent C. 3.81 percent D. 4.50 percent E. 4.81 percent M 18. The Stiller Corporation will pay a $3.80 per share dividend next year. The company pledges to increase its dividend by 24 percent indefinitely. How much are you willing to pay to parchase this company's stock today if you require a 6.9 percent return on your investment? A. $55.07 B. $63.09 C. $72.22 D. $78.47 E. $84.44 acturers made two announcements concerning its common stock today. First, the company announced that th next annual dividend will be S1.75 a share. Secondly, all dividends after that will decrease by 1.5 percent annually. What is the maxim mum amount you should pay to purchase a share of this stock today if you require a 14 percent rate of return? S11.29 B. $12.64 C $13.27 D. $14.00 E. $14.21 M 20. Whistle Stop Trains pays a constant S16 dividend on its stock. The company will maintain this dividend for the next 14 years and will then cease paying dividends forever. What is the current price per share if the required return on this stock is 15 percent? A. $77.78 B. $82.48 C, S91.59 D. $106.67 E. $112.00 Page 5Explanation / Answer
18) E. $ 84.44 Working: Current Value of stock = D1/(Ke-g) Where, = 3.80/(6.9%-2.4%) D1 $ 3.80 = $ 84.44 Ke 6.9% g 2.4% 19) D. $ 14.00 Working: Current Value of stock = D1/(Ke-g) Where, = 1.75/(14%-1.5%) D1 $ 1.75 = $ 14.00 Ke 1.5% g 14.0% 20) C. $ 91.59 Working: Present value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.15)^-14)/0.15 i 15% = 5.724 n 14 Present value of dividend = $ 16.00 x 5.724 = $ 91.59
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