Kermit Industries' Current Common Stock Dividend Is $1

question 8

Multiple Choice

Kermit Industries' current common stock dividend is $1.35 per share, and the dividend is expected to grow at 6% per year into the foreseeable future. Currently the risk-free rate is 4.5% and the estimated market risk premium is 8.5%. Merrill Lynch has estimated KI's beta to be 1.10. Compute the expected price for KI's common stock.

• A) $17.20
• B) $10.33
• C) $18.23
• D) $49.35

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Definitions:

Economic Perspective

A viewpoint that emphasizes analyzing problems and making decisions based on economic principles and models.

Marginal Benefits

The boost in pleasure or benefit experienced from the consumption or creation of one extra unit of a good or service.

Marginal Costs

The boost in total charges incurred by producing one more unit of a product or service.

Rational Self-interest

Acting in a way that is most beneficial to oneself, based on logical and reasoned decision-making.