Comptron currently trades for a price based upon its last dividend paid of $4, i
ID: 2777536 • Letter: C
Question
Comptron currently trades for a price based upon its last dividend paid of $4, its beta of 1.1 and expected growth of 2%. The risk free and risk premium are 2.5% and 6%, respectively. The new CEO wants to launch new initiatives for growth. In discussing the plans with the CFO, the new initiatives boil down to an increased growth rate to 5%, but at the cost of increasing beta to 1.4 Should the initiatives be undertaken?
Yes--new stock price should move to $67.49, an increase over its current price.
Yes--new stock price should move to $71.19, an increase over its current price of $58.29.
No--new stock price should move to $67.49, a decrease from its current price.
No--new stock price should move to $71.19, a decrease from its current price.
a.Yes--new stock price should move to $67.49, an increase over its current price.
b.Yes--new stock price should move to $71.19, an increase over its current price of $58.29.
c.No--new stock price should move to $67.49, a decrease from its current price.
d.No--new stock price should move to $71.19, a decrease from its current price.
Explanation / Answer
b. Yes--new stock price should move to $71.19, an increase over its current price of $58.29.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.