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:

Services Surplus

Services Surplus describes a situation where the value of exported services of a country exceeds the value of its imported services, contributing positively to its trade balance.

Capital and Financial Account

Refers to parts of the balance of payments where capital transfers, investments, and financial derivatives are recorded.

Money Inflows

Financial resources entering a particular entity, such as a business or country, over a period of time.

Financial Account Balance

A component of a country's balance of payments that records transactions of foreign investment associated with that country.