On a certain date, Kastbro has a stock price of $37.50, pays a dividend of $0.64, and has an equity cost of capital of 8%. An investor expects the dividend rate to increase by 6% per year in perpetuity
He then sells all stocks that he owns in Kastbro. Given Kastbro's share price, was this a reasonable action?
A) No, since the constant dividend growth rate gives a stock estimate of $37.50.
B) No, since the constant dividend growth rate gives a stock estimate greater than $37.50.
C) Yes, since the constant dividend growth rate gives a stock estimate greater than $37.50.
D) No, since the difference between his calculated stock price and the actual stock price most likely indicates that his estimate of dividend growth rate was incorrect.
Answer: D
You might also like to view...
The first step in planning a channel strategy is to determine what markets need to be reached
Indicate whether the statement is true or false
A company's organizations and processes for distributing and delivering products to the final customers is the
A) supplier's internal supply chain. B) external supply chain. C) upstream portion of the supply chain. D) downstream portion of the supply chain. E) onstream portion of the supply chain.
Assume that a client has encountered a $800,000 fraud and that the CPA's percentage of responsibility established at 20%, while the company itself was responsible for the other 80%. Under which approach to liability is the CPA most likely to avoid liability entirely?
A. Joint Negligence. B. Comparative negligence. C. Contributory negligence. D. Absolute negligence.
The likelihood that material misstatements may have entered the accounting system and not been detected and corrected by the client's internal control is referred to as?
a. Inherent risk b. control risk c. detection risk d. Risk of Material misstatement