Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Home Appliances, Inc. will pay a quarterly dividend per share of $.0.50 at the end of each of the next 8 quarters. Thereafter, the

1. Home Appliances, Inc. will pay a quarterly dividend per share of $.0.50 at the end of each of the next 8 quarters. Thereafter, the dividend will grow at a quarterly rate of 1 percent, forever. The appropriate rate of return on the stock is 9 percent, compounded quarterly. What is the current stock price? (Hint: rate of return is quoted in nominal term, i.e., per year)

a. $50.26 b. $44.19 c. $34.56 d. $37.44 e. $41.02

2. Concord Company earned $25 million for the fiscal year ending yesterday. The firm also paid out 50 percent of its earnings as dividends yesterday. The firm will continue to pay out 50 percent of its earnings as annual, end-of-year dividends. The remaining 50 percent of earnings is retained by the company for use in projects. The company has 2 million shares of common stock outstanding. The current stock price is $60. The historical return on equity (ROE) of 14 percent is expected to continue in the future. What is the required rate of return on the stock? (Hint: use the retention ratio and ROE to estimate the growth rate)

a. 19.16% b. 18.15% c. 17.64% d. 18.77% e. 17.95%

3. Vitamin World wants to have a weighted average cost of capital of 8%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?

a. 1.00 b. 1.50 c. 1.80 d. 1.20 e. 1.40

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Bundling And Finance Transformation

Authors: Frank Keuper, Kai-Eberhard Lueg

1st Edition

3658042109, 978-3658042103

More Books

Students also viewed these Finance questions

Question

Illustrate the link between business

Answered: 1 week ago