If a Company Has a Current Stock Price of $25

question 78

Multiple Choice

If a company has a current stock price of $25, an EPS of $2.75/share; EPS growth rate of 15% and the investors rate of return is 20%, calculate the cash cow price.

• A) $13.75
• B) $14.50
• C) $15.25
• D) $16.00
• E) $16.75

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Definitions:

Rates of Return

The net gain or loss on an investment over a specified time period, expressed as a percentage of the investment's initial cost.

EAR

Effective Annual Rate, a measure of interest that takes into account the compounding of interest over time.

Borrower

An individual, company, or entity that receives funds from another party with the agreement to repay the principal amount along with any agreed-upon interest.

Annualized (Geometric)

Annualized (geometric) refers to the method of calculating an average rate of return that accounts for the compounding effect over a period.