Dyer Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 0.90, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Dyer's current stock price?
a. $42.37
b. $42.93
c. $43.49
d. $42.65
e. $43.21
2. LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $605,000, and its net income after taxes was $24,655. Stock holders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant?
a. 6.66%
b. 8.31%
c. 8.86%
d. 7.21%
e. 7.76%