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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?

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    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