Based on the discounted dividend model common stock

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Reference no: EM132012590

1. A stock has just paid $4 of dividend. The dividend is expected to grow at a constant rate of 12%a year, and the common stock currently sells for $70. The before-tax cost of debt is 10% and the tax rate is 20%. The target capital structure consists of 37% debt and 63% common equity. What is the company’s WACCi if all the equity used is from retained earnings?

A 14.55%

B 13.53%

C 13.68%

D 15.86%

E 15.13%

2. A stock currently sells for $44.00 and its required rate of return is 16.00%. the dividend is expected to increase at a constant rate of 6.00% per year. What is the stock’s expected price 8 years from today?

A $19.25

B $75.74

C $82.75

D $75.04

E $70.13

3. Based on the Discounted Dividend model a common stock with a constant dividend of $0 has no value and it has a price of $0.

True

False

Reference no: EM132012590

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