20, A company has stock which costs $43.25 per share and pays a dividend of $2.9

Question

20, A company has stock which costs $43.25 per share and pays a dividend of $2.90 per share this 20) year. The company's cost of equity is 8%, what is the expected annual growth rate of the company's dividends? A) 5.16% B) 1.29% C) 2.58% D) 3.87% 21) 21; Consider the following two projects: ear Year4 Discount ProjectYear Year1 Year 2 Cash Flow Cash Flow Cash Flow Cash Flow Cash Flow Rate NA 0.12 50 30 40 - 100 73 31 0.12 30 The payback period for project A is closest to D) 2.2 years B)2.6 years C) 2.4 yeans

Explanation / Answer

Answer 20 Using dividend discount model , we can calculate the expected annual growth rate. Stock price = Dividend for next year /(Cost of equity - growth rate) Stock price = $43.25 Growth rate = g = ? Dividend = $2.90 Cost of equity = 8% 43.25 = 2.90 /(0.08 - g) 43.25(0.08-g) = 2.90 3.46 - 43.25g = 2.90 0.56 = 43.25g g = 1.29% The answer is Option B. Answer 21 Calculation of payback period for Project A Year Cash flow Cumulative Cash flow 0 -$100.00 -$100.00 1 $40.00 -$60.00 2 $50.00 -$10.00 3 $50.00 $40.00 4 $0.00 $40.00 Payback period = 2 years + ($10/$50) = 2.20 years The answer is Option D.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.