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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  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  $1.25; P0  $40; g  6% (constant); and F  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%

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____ 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

Answer: B

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