Question
Statement I: The equity financing in the weighted average cost of capital calculation can consist of (i) internal equity financing through common stock; and (ii)
Statement I: The equity financing in the weighted average cost of capital calculation can consist of (i) internal equity financing through common stock; and (ii) external equity financing through retained earnings. Statement II: The liability structure will determine the weights used in weighted average cost of capital calculations.
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An investor plans to buy a common stock and hold this for 5 years. The expected dividends are as follows:
Year 1: $1.25
Year 2: $1.40
Year 3: $1.45
Year 4: $1.50
Year 5: $1.55
This investor expects to sell this stock for $40 at the end of 5 years. The investor requires a return rate of 25%. Based on this information, the present value of the common stock today is equal to:
Group of answer choices
$18.51
$19.51
$20.51
$16.87
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