1. A stock has just paid $4 of dividend. The dividend is expected to grow at a constant rate of 12%a year, and the common stock currently sells for $70. The before-tax cost of debt is 10% and the tax rate is 20%. The target capital structure consists of 37% debt and 63% common equity. What is the company’s WACCi if all the equity used is from retained earnings?
A 14.55%
B 13.53%
C 13.68%
D 15.86%
E 15.13%
2. A stock currently sells for $44.00 and its required rate of return is 16.00%. the dividend is expected to increase at a constant rate of 6.00% per year. What is the stock’s expected price 8 years from today?
A $19.25
B $75.74
C $82.75
D $75.04
E $70.13
3. Based on the Discounted Dividend model a common stock with a constant dividend of $0 has no value and it has a price of $0.
True
False