A Financial Analyst Has Been Following Fast Start Inc

question 83

Multiple Choice

A financial analyst has been following Fast Start Inc., a new high-growth company. She estimates that the current risk-free rate is 6.25 percent, the market risk premium is 5 percent, and that Fast Start's beta is 1.75. The current earnings per share (EPS0) is $2.50. The company has a 40 percent payout ratio. The analyst estimates that the company's dividend will grow at a rate of 25 percent this year, 20 percent next year, and 15 percent the following year. After three years the dividend is expected to grow at a constant rate of 7 percent a year. The company is expected to maintain its current payout ratio. The analyst believes that the stock is fairly priced. What is the current price of the stock?

• A) $16.51
• B) $17.33
• C) $18.53
• D) $19.25
• E) $19.89  

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Definitions:

Need for Purposefulness

Refers to the intrinsic human motivation to have a sense of meaning and intention in one's actions and life endeavors.

Intrinsically Motivated

Being driven to act or perform tasks due to inherent satisfaction or interest in the task itself, rather than external rewards or pressures.

Intrinsic Motivation

The drive to perform an activity for its inherent satisfaction rather than for some separable consequence or reward.

Extrinsic Motivation

The drive to perform actions or engage in activities due to external rewards or pressures.