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Chill Out Corporation's Next Annual Dividend & 2 Other Multi-Choice Questions

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Chill Out Corporation's next annual dividend is expected to be $1.06 per share. Dividends and earnings have been growing at 6% a year and you expect this growth rate to continue indefinitely. If your required rate of return for this stock is 14%, what is the maximum price you should be willing to pay for it?

a. $7.57

b. $1.24

c. $13.25

d. $17.66

2. If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price.

a. True

b. False

The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of $5 per share and a par value of $30. If the required return on this stock is currently 20 percent, what should be the stock's market value?

a. $150

b. $100

c. $ 50

d. $ 25

e. $ 10

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Solution Summary

The solution gives a short calculation or reason to each of the 3 finance multiple choice questions. Topics of stock market value, similar current dividends and growth rates and maximum price to pay for stock are dealt with.

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Chill Out Corporation's next annual dividend is expected to be $1.06 per share. Dividends and earnings have been growing at 6% a year and you expect this growth rate to continue indefinitely. If your required rate of return for this stock is 14%, what is the maximum price you should be ...

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