Question
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
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
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started