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# Value of a share of the firm's common stock

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A firm has an expected dividend next year of \$1.20 per share, a 4 percent growth rate of dividends, and a required return of 10 percent. The value of a share of the firm's common stock is
A) \$120
B) \$10
C) \$12
D) \$20

Sterling Corporation has a beta of 1.2. If the market return is 14 percent and the risk-free rate is 8 percent, was is Sterling's expected return.

Calculate the initial investment of the following replacement project. The cost of the new asset is \$200,000, and installation costs are \$15,000. The initial cost of the existing asset is \$80,000 and has a book value of \$16,000. The existing asset can be sold for \$30,000. The tax rate is 40%.

The Baugh X-Ray company paid \$2.00 common stock dividend last year. The company's policy is to allow its dividend to grow at 5 percent for 4 years and then the rate of growth changes to 3 percent per year from year five on. What is the value of the stock if the required rate of return is 8%?

Stan's Cans, Inc. expects to earn \$150,000 next year after taxes on sales of \$2,200,000. Stan's manufactures only one size of garbage can and is located in the small, but beautiful, town of Mount Dora, Florida. Stan sells his cans for \$8 a piece and they have a variable cost of \$2.40 a piece. Stan's tax rate is currently 34%.

a. What are the firm's expected fixed costs for next year?
b. What is the break-even point in units?

https://brainmass.com/economics/risk-analysis/value-of-a-share-of-the-firm-s-common-stock-464237

#### Solution Preview

Finance Queries
A firm has an expected dividend next year of \$1.20 per share, a 4 percent growth rate of dividends, and a required return of 10 percent. The value of a share of the firm's common stock is
A) \$120
B) \$10
C) \$12
D) \$20

Value of Share= Dividend next year /( required return- Growth rate)
=1.2/(10%-4%)
=\$20

Hence D.

Sterling Corporation has a beta of 1.2. If the market return is 14 percent and the risk-free rate is 8 percent, was is Sterling's expected return.

=Risk free rate + Beta *(Market return-Risk free rate)
=8%+1.2*(14%-8%)
=15.2%

Calculate the initial investment of the following replacement project. The cost of the new asset is ...

#### Solution Summary

Solution helps in computing value of a share of the firm's common stock

\$2.19