QUESTION 12

Part A: Suppose a company has just paid an annual dividend of $2.00 per share. The cost of capital for this stock is 10%. If there was NO growth, what is the price of the stock today (this would be valuing the company as if the company was a cash cow)?

a. $13.85

b. $14.00

c. $15.71

d. $19.00

e. $20.00

Part B: Suppose a company has just paid an annual dividend of $2.00 per share. The company expects to grow this dividend at an annual rate of 3.0%. The cost of capital for this stock is 10%.What is the price of the stock today?

a. $18.14

b. $18.90

c. $22.88

d. $27.96

e. $29.43