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# Wald Inc's stock has a required rate of return of 10%, and i

____ 18. Wald Inc's stock has a required rate of return of 10%, and it sells for \$40 per share. Wald's dividend is expected to grow at a constant rate of 7% per year. What is the expected year-end dividend, D1?
a. \$1.10
b. \$1.20
c. \$1.00
d. \$1.30
e. \$0.90

____ 22. Motor Homes Inc. (MHI) is presently enjoying abnormally high growth because of a surge in the demand for motor homes. The company expects earnings and dividends to grow at a rate of 20% for the next 4 years, after which there will be no growth (g &#61501; 0) in earnings and dividends. The company's last dividend, D0, was \$1.50. MHI's beta is 1.5, the market risk premium is 6%, and the risk-free rate is 4%. What is the current price of the common stock?
a. \$25.87
b. \$19.63
c. \$23.57
d. \$17.51
e. \$21.66

____ 23. Wagner Lumber Company hired you to help them estimate their cost of capital. You were provided with the following data: D1 &#61501; \$1.25; P0 &#61501; \$40; g &#61501; 6% (constant); and F &#61501; 5%. The firm must issue new stock; what is the cost of equity raised by selling new common stock?
a. 9.62%
b. 9.40%
c. 9.99%
d. 9.85%
e. 9.29%

#### Solution Preview

____ 18. Wald Inc's stock has a required rate of return of 10%, and it sells for \$40 per share. Wald's dividend is expected to grow at a constant rate of 7% per year. What is the expected year-end dividend, D1?
a. \$1.10
b. \$1.20
c. \$1.00
d. \$1.30
e. \$0.90

P = D1 where D1 is the dividend one year from now
(k - g) k is the required rate of return
g is the growth rate
P is the current price

40 = D1
(0.10 - 0.07)

D1 = 1.20

____ ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what is the expected year-end dividend, D1.

\$2.19