Chapter 08 Stock Valuation



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AACSB: Analytic
Difficulty: Intermediate
EOC #: 8-20
Learning Objective: 8-1
Section: 8.1
Topic: Stock price
 

118. Harvey County Choppers, Inc. is experiencing rapid growth. The company expects dividends to grow at 25 percent per year for the next 7 years before leveling off to 7 percent into perpetuity. The required return on the stock is 12 percent. What is the current stock price if the annual dividend share that was just paid was $1.05? 


A. $60.15
B. $64.36
C. $67.37
D. $72.11
E. $75.19

 


AACSB: Analytic
Difficulty: Intermediate
EOC #: 8-21
Learning Objective: 8-1
Section: 8.1
Topic: Stock price
 

119. Westover Winds just paid a dividend of $2.50 per share. The company will increase its dividend by 8 percent next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 2 percent dividend growth, after which the company will keep a constant growth rate forever. What is the price of this stock today given a required return of 12 percent? 


A. $28.42
B. $28.99
C. $31.83
D. $32.06
E. $32.47

 


AACSB: Analytic
Difficulty: Challenge
EOC #: 8-24
Learning Objective: 8-1
Section: 8.1
Topic: Stock price
 


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