ted total return for 5.5% and P $40, what is the stock\'s expe 25, g (which is c
ID: 2794674 • Letter: T
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ted total return for 5.5% and P $40, what is the stock's expe 25, g (which is constant) the coming year? thecoming y b. C. d. e. 8.80% 10.09% 6.47% 10.35% 8.63% 15. Reddick Enterprises' stock currently sells for $24.50 per share. The dividend is projected to increase ataonstant rate of 5.50% per year. The required rate of return on the stock, rs. is 9.00%. What is the stock's expected price 3 years from today? a. $31.65 b. $24.45 C. $28.77 d. $33.66 e $26.76 16. Molen Inc. has an outstanding issue of perpetual preferred stock with an annual dividend of $2.00 per share. If the required return on this preferred stock is 6.25%, at what price should the stock sell? a. $30.77 b. $32.00 C $38.15 d. $23.38 e. $27.38 17, The Francis Company is expected to pay a dividend of D1 =$1.25 per share at the end of the year. and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.70, the market risk premium is 5.50%, and the risk-free rate is 4.00%, what is the company's current stock price? a. $13.44 $12.93 $17.01 $14.80 e $18.03 18. Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting? a. Long-term debt b. Accounts payable. c. Retained eanings. d. Common stock. e. Preferred stock.Explanation / Answer
.14.
D1=$1.25
g=5.5%=0.055
P0=$40
P0=D1/(R-g)
R=Required return
R-g=D1/P0=1.25/40=0.3125
R=0.3125+0.055=0.08625=8.625%(Rounded to 8.63%)
Expected total return for the coming year=8.63%
Answer:e.8.63%
.15
Current price=P0=$24.50
Dividend growth rate=g=5.5%=0.055
Required rate of return=R=9%=0.09
Stocks expected price 3 years from now=P3
P3=D4/(R-g): D4 =Dividend four years from now
D1=Next years dividend
P0=D1/(R-g)
R-g=0.09-0.055=0.035
24.5=D1/0.035
D1=24.5*0.035=$0.8575
D4=D1*((1+0.055)^3)=0.0875*1.174241=$1.006912
P3=D4/(R-g)=1.006912/0.035= $ 28.7689 (Rounded to $28.77)
Answer:c.$28.77
.17 D1=$1.25
Dividend growth rate per year=g=6%=0.06
Beta=1.7
Market risk premium=5.5%
Risk free rate=4%
As per Capital Asset Pricing Model(CAPM)
R=Expected return of the stock=Rf+Beta*(Rm-Rf)
Rf=Risk free return=4%
Rm-Rf=Market risk premium=5.5%
Rm=Market return
Beta=1.7
R=4+1.7*5.5=13.35%
R=0.1335
Current stock price=P0=D1/(R-g)=1.25/(0.1335-0.06)=1.25/0.0735
P0=$17.0068( Rounded to $17.01)
Answer:c.$17.01
18.Long term debt is a capital component for calculating WACC
Retained earning is part of owners’ equity and capital component of WACC
Common Stock and preferred stock are capital component of WACC
Current liabilities are not part of capital for calculating WACC
Accounts payable is current liability , hence not a component of capital for calculation of WACC
Answer:
b. Accounts payable
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