Assume that the required rate of return for this stock

Assignment Help Financial Management

Reference no: EM13921921

A company just paid out an annual dividend of $5. The dividend amount will grow at 3%annually forever, e.g., next year's dividend amount will be $5.15 and so on. If you buy a share today and sell it at year 5, how much of a capital gain (not including the dividend yield) would you expect? Assume that the required rate of return for this stock is 20%.

a. $2.50

b. $3.33

c. $4.00

d. $4.83

Reference no: EM13921921

Questions Cloud

About the issued bonds rate : Diesel company issued bonds with 12% coupon rate, semiannual coupon, $1,000 par value. Bonds mature in 40 years and are callable 5 years from now at $1120. Bonds are sold today at a price of $1300, and the yield curve is ownward sloping. What type of..

What is its yield to maturity-coupon payment paid annually : Samuelson Company just issued a 20-year bond that pays $90 coupon payment paid annually. The fave value of the bond is $1,000. If the bond is being sold at $1,152.92, what is its yield to maturity?

Preference over common stockholders in terms of dividends : Preferred stockholders have preference over common stockholders in terms of dividends. If a preferred dividend is missed, the firm is technically in default. SEC may allow firms to issue different classes of common shares that differ in voting rights..

Write a memo explaining whether the total cash out flow : Write a memo explaining whether the total cash out flow for interest would be more, less, or the same, if the bonds pay semiannual versus annual interest.

Assume that the required rate of return for this stock : A company just paid out an annual dividend of $5. The dividend amount will grow at 3%annually forever, e.g., next year's dividend amount will be $5.15 and so on. If you buy a share today and sell it at year 5, how much of a capital gain (not includin..

Drawbacks of accumulating cash balances : What are the benefits and drawbacks of accumulating cash balances rather than paying dividends and what effects does dividend policy have on this type of decision?

Expansion project-requires initial fixed asset investment : Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.9 million. The fixed asset will be depreciated straight-line to zero over its 3 year tax life, after which time it will be worthl..

Preston and grover company : Preston and Grover company manufactures powdered detergents. Phosphate is placed in process in the making department where it is turned into granules.

Asymmetric have on the optimal level of leverage : What impact does asymmetric have on the optimal level of leverage? In your answer be sure to describe the implications of adverse selection and the lemons principle for equity issuance, as well as the empirical implications.

User Account

All Pages