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A stock is trading at $82 per share. The stock is expected to have a year-end dividend of $4 per share which is expected to grow at some constant rate g throughout time. The stock's required rate of return is 14%. What would your forecast of g?
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Question 1: A stock is trading at $82 per share. The stock is expected to have a year-end dividend of $4 per share which is expected to grow at some constant rate g throughout time. The stock's required rate of return is 14%. What would your forecast of g? Ans: P= $82 D= $4 i = $14% g = ? P = + g 82 = + g 11.48 - 82g = 4 + g -81g = -7.48 g = 9.23% Question 2: The management of Biz-Wizz Ltd. is trying to decide on a cost of capital discounting rate to apply in their evaluation of investment projects. The company has issued share capital of 500,000 ordinary shares with $1 par value and current market value of $1.17 per share. It has also issued $200,000 debentures with 10% coupon interest rate and $100 par value. The debentures are irredeemable and its current market value is $105.30 per share. Moreover, the company issued $100,000 preference...
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