18. The discount rate in equity valuation is composed entirely of A. the dividen
ID: 3052798 • Letter: 1
Question
18. The discount rate in equity valuation is composed entirely of A. the dividends paid and the capital gains yield B. the dividend yield and the growth rate. C. the dividends paid and the growth rate. D. the capital gains earned and the growth rate. E. the capital gains eaned and the dividends paid. 19. The net present value of a growth opportunity. NPVGO, can be defined as: A, the initial investment necessary for a new project. B. the net present value per share of an investment in a new project C. a continual reinvestment of earnings when r g. E. None of these. 20. Angelina's made two announcements concerning its common stock today. First, the company announced that its next annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10% rate of return? A $21.60 B. $22.46 C. $27.44 D. $34.62 E. $36.00 21. Weisbro and Sons' common stock sells for $21 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stock is 9%, what is the amount of last dividend paid by Weisbro and Sons? B. $.80 C. $.84 D. $.87 E. $.88
Explanation / Answer
(18) The discount rate in equity valuation is composed entirely of
Ans:The divided yield and the growth rate (option B is correct)
(19) The net present value of a growth opportunity, NPVGO can be defined as
Ans:the NPV per share of an investment in a new project (option B is correct)
(20) Angelina's made two announcements concerning their common stock today. First, the company announced that their next annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4%annually. What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10 % rate of return?
Ans:P0=2.16/(0.10-0.40)
=36.00 (option E is correct)
(21) Weisbro and Sons common stock sells for $21 a share and pays an annual dividend that increases by 5%annually. The market rate of return on this stock is 9% What is the amount of the last dividend paid by Weisbro and Sons?
Ans: 21=Div/(0.09-0.05)
Div=21*(0.04)
=0.84
Div1=Div0*(1+g)
0.84=Div0*(1.05)
Div0=0.84/1.05
=0.80
the amount of the last dividend paid by Weisbro and Sons is 0.80(Option B is correct)
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