The Growth Firm forecasts that its cash flows will increase by 5% per year indefinitely and the dividends paid to shareholders will increase at the same rate accordingly. It just paid a £4 annual dividend on its shares and the price of the shares is currently £40. What is the required rate of return of the shares? a. 10.00% b. 15.50% c. 9.00% d. 9.50%

The Growth Firm forecasts that its cash flows will increase by 5% per year indefinitely and the dividends paid to shareholders will increase at the same rate accordingly. It just paid a £4 annual dividend on its shares and the price of the shares is currently £40. What is the required rate of return of the shares? a. 10.00% b. 15.50% c. 9.00% d. 9.50%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 16MC

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A firm has just paid a $6.00 annual dividend. The dividend is projected to grow at 6.20% per year indefinitely. If the stock sells today for $120.00, what is the required rate of return on the stock? a . 10.19% b. 11.51% c. 6.20% d. 15.77% e. 11.20%
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17. A firm is currently paying a dividend of $3 per share. It is expected to grow its dividend at the rate of 15 percent per annum for the next two years. After two years, the dividend is expected to grow at a constant rate of 4 percent per year indefinitely. If the investors require a return of 10 percent, then what should be the share price after the firm paid the dividend in year 1? a. 69.738 b. 50.000 c. 39.675 d. 70.092 e. 66.125
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You are planning to invest in common stock of Eagle, Inc. Lately, the firm paid a dividend of P7.80. You have projected that dividends will grow at a rate of 9.0% per year indefinitely. If you want an annual return of 24.0%, what is the most you should pay for the stock now? A. P52.00 B. P56.68 C. P32.50 D. P35.43
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