Current Price of Stock, WACC
Not what you're looking for?
The last dividend paid by a company was $2.20. Klein's growth rate is expected to be 10 percent for one year, after which dividends are expected to grow at a rate of 6 percent forever. The company's stockholders require a rate of return on equity (rs) of 11 percent. What is the current price of the stock?
a. $44.00
b. $46.64
c. $48.40
d. $48.64
e. $50.40
An analyst has collected the following information regarding Christopher Co.:
? The company's capital structure is 70 percent equity, 30 percent debt.
? The yield to maturity on the company's bonds is 9 percent.
? The company's year-end dividend is forecasted to be $0.80 a share.
? The company expects that its dividend will grow at a constant rate of 9 percent a year.
? The company's stock price is $25.
? The company's tax rate is 40 percent.
? The company anticipates that it will need to raise new common stock this year. Its investment bankers anticipate that the total flotation cost will equal 10 percent of the amount issued. Assume the company accounts for flotation costs by adjusting the cost of capital. Given this information, calculate the company's WACC.
a. 10.41%
b. 12.56%
c. 10.78%
d. 13.55%
e. 9.29%
Purchase this Solution
Solution Summary
The solution answers 2 questions one relating to Current Price of Stock, the other to WACC
Solution Preview
See attached file
The last dividend paid by a company was $2.20. Klein's growth rate is expected to be 10 percent for one year, after which dividends are expected to grow at a rate of 6 percent forever. The company's stockholders require a rate of return on equity (rs) of 11 percent. What is the current price of the stock?
a. $44.00
b. $46.64
c. $48.40
d. $48.64
e. $50.40
Answer: c. $48.40
Div0 = $2.20
Div1 = $2.42 =2.20*(1+10%)
Div2 = $2.5652 =2.42*(1+6%)
P2= Div1/ (r-g)
Dividend for 2nd year= Div2 = $2.5652
Cost of equity= r= 11%
growth rate of ...
Purchase this Solution
Free BrainMass Quizzes
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Basics of corporate finance
These questions will test you on your knowledge of finance.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.