Carlson Products, a Constant Growth Company, Has a Current Market

question 8

Multiple Choice

Carlson Products, a constant growth company, has a current market (and equilibrium) stock price of $20.00. Carlson's next dividend, D1, is forecasted to be $2.00, and Carlson is growing at an annual rate of 6 percent. Carlson has a beta coefficient of 1.2, and the required rate of return on the market is 15 percent. As Carlson's financial manager, you have access to insider information concerning a switch in product lines which would not change the growth rate, but would cut Carlson's beta coefficient in half. If you buy the stock at the current market price, what is your expected percentage capital gain?

• A) 23%
• B) 33%
• C) 43%
• D) 53%
• E) There would be a capital loss.

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The representation, often in the form of a table or graph, of how the values in a data set are distributed across distinct values or ranges of values, showing the frequency of each value or range.

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