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1. The common stock of Eddie's Engines, Inc. sells for $37.43 a share. The stock is expected to pay $3.40 per share next year. Eddie's has established a pattern of increasing their dividends by 5.5 percent annually and expects to continue doing so. What is the market rate of return on this stock?
18.09 percent
6.56 percent
9.08 percent
14.58 percent
11.01 percent
2. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 18 percent a year for the next 4 years and then decreasing the growth rate to 3 percent per year. The company just paid its annual dividend in the amount of $1.80 per share. What is the current value of one share of this stock if the required rate of return is 7.30 percent?
$85.39
$83.59
$74.05
$63.06
$72.25
3. The risk-free rate of return is 4.4 percent and the market risk premium is 14 percent. What is the expected rate of return on a stock with a beta of 1.6?
10.52 percent
26.80 percent
21.04 percent
13.40 percent
22.40 percent
Review the financial statements of Merck and Novartis to learn additional information. The emphasis of this Case is to review the income statement, balance sheet and computation of ratios.
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The Colin Powell paper.
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