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Week 6 Cengage Homework

Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?

a. All common stock, regardless of class, must pay the same dividend. b. All common stocks, regardless of class, must have the same voting rights. c. Some class or classes of common stock are entitled to more votes per share than other classes. d. All firms have several classes of common stock. e. All common stocks fall into one of three classes: A, B, and C.

The expected return on Natter Corporation’s stock is 14%. The stock’s dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

a. The stock’s dividend yield is 7%. b. The current dividend per share is $4.00. c. The stock’s dividend yield is 8%. d. The stock price is expected to be $54 a share one year from now. e. The stock price is expected to be $57 a share one year from now.

Problem 7-5 Nonconstant Growth Valuation

A company currently pays a dividend of $4 per share, D0 = 4. It is estimated that the company’s dividend will grow at a rate of 22% percent per year for the next 2 years, then the dividend will grow at a constant rate of 8% thereafter. The company’s stock has a beta equal to 1.95, the risk-free rate is 7.5 percent, and the market risk premium is 5 percent. What is your estimate is the stock’s current price? Round your answer to the nearest cent.

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Which of the following statements is CORRECT, assuming stocks are in equilibrium?

a. The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield. b. Assume that the required return on a given stock is 13%. If the stock’s dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well. c. A required condition for one to use the constant growth model is that the stock’s…

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