A firm\'s common stock currently sells for $40 per share. The firm recently paid

Question

A firm's common stock currently sells for $40 per share. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10% per year. What's the firm's cost of common stock using DCF approach?

9.5%

10.0%

15.5%

16.5%

A stock is selling for $50 in the market. The company's beta is 1.2, the market risk premium (rM - rF) is 5%, and the risk-free rate is 3%. The most recent dividend paid is D0 = $2 and dividends are expected to grow at a constant rate g. What's the dividend growth rate g for this stock?

3.00%

4.19%

4.81%

5.0%

Using the above information, find the stock's capital gain yield.

3.00%

4.19%

4.81%

5.0%

Using the information from above Question, find the stock's dividend yield.

3.00%

4.19%

4.81%

5.0%

9.5%

10.0%

15.5%

16.5%

Explanation / Answer

1.

2.

4.

Price = Do(1+g)/(ke-g) 40 = 2(1+0.10)/(Ke-0.10) 40 = 2.2/(Ke-0.10) Ke-0.10 = 2.2/40 Ke-0.10 = 0.055 Ke = 0.055+0.10 Ke = 0.155 Ke = 15.5%

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