Question
Muscle motors, a car company specializing in vintage, retro cars just paid a dividend on its common stock of $1.65/share. The required return of the
Muscle motors, a car company specializing in vintage, retro cars just paid a dividend on its common stock of $1.65/share. The required return of the companys common stock can be calculated using the Capital Asset Pricing Model and the following information: market risk premium: 6%, beta = 1.35, risk free rate 5.4% a. What is Muscle motors cost of equity capital? b. Calculate the price of its common stock if dividends grow at 0% per year. c. Calculate the price of its common stock if dividends grow at an annual rate of 4.5% d. Calculate the price of its common stock if dividends grow at an annual rate of 6.5% for the first three years, followed by 3.5% annual growth thereafter.
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