Suppose that company ABC's last dividend was $5 per share, and company DEF's last dividend was $10 per share. Analysts expect that company ABC's dividend will grow at a constant rate of 2%, and company DEF's dividend will grow at a constant rate of 3%. Which of the following must be true? ?
a) The stock price of company ABC is higher than that of company DEF
b) The stock price of company DEF is higher than that of company ABC
c) Company DEF's growth rate must decline at some point.
d) Given this information, no conclusion can be reached about the prices of company ABC and DEF.
2. It is January 2nd and senior management of Digby meets to determine their investment plan for the year. They decide to fully fund a plant and equipment purchase by issuing 75,000 shares of stock plus a new bond issue. Assume the stock can be issued at yesterday’s stock price ($38.50) and leverage changes to 2.8. Which of the following statements are true? Select all that apply.
Total assets will rise to $241,230,461
Digby will issue stock totaling $2,887,500
Working capital will remain the same at $13,152,131
Total liabilities will be $153,993,357
The total investment for Digby will be $28,488,845