Compute price of stock if dividend was paid in perpetuity

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Reference no: EM132014740

1. Explain What is the correct way to annualize an interest rate in financial decisions?

Explain with an example

2. What is the current price of a stock that just paid dividends of $3 per share, if you require 15% return on your investment? Assume dividends will grow at a rate of 5% a year. Compute the price of the stock if the $3 dividend was paid in perpetuity

3. (Cost of equity) The cost of capital is 15%, the before-tax cost of debt is 9%, and the marginal income tax rate is 40%. The market value of debt is $50 million and the market value of equity is $50 million. What is the cost of equity

9.00%

10.00%

11.50%

12.60%

13.25%

14.16%

15.00%

24.60%

25.24%

Reference no: EM132014740

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