R) E Lee Recently Took His Company Public Through an Initial

question 18

Multiple Choice

R) E. Lee recently took his company public through an initial public offering. He is expanding the business quickly to take advantage of an otherwise unexploited market. Growth for his company is expected to be 40 percent for the first three years and then he expects it to slow down to a constant 15 percent. The most recent dividend (D0) was $0.75. Based on the most recent returns, the beta for his company is approximately 1.5. The risk-free rate is 8 percent and the market risk premium is 6 percent. What is the current price of Lee's stock?

• A) $77.14
• B) $75.17
• C) $67.51
• D) $73.88
• E) $93.20

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Definitions:

Financial Statements

Compiled reports that provide an overview of a business’s financial condition, including income statement, balance sheet, and cash flow statement.

Return on Total Assets

A profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets.

Performance

Refers to the act of carrying out or accomplishing an action, task, or function.

Profit Margin

A financial metric that calculates the percentage of profit derived from revenue after all expenses are subtracted.