The Common Stock of a fiRm Is Currently Priced at $53

question 113

Multiple Choice

The common stock of a firm is currently priced at $53 a share. The company paid $1.40 in common dividends last year and expects to increase this amount by 3% annually. The stock has a beta of
1) 40, which is about equal to its industry average. Given this information, what is the cost of equity
financing?

• A) 3.81%
• B) 5.64%
• C) 5.72%
• D) 6.70%
• E) 8.01%

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Definitions:

Aircraft Production

The process and industry involved in designing, manufacturing, and assembling aircraft.

Newspaper Printing

The process of mass-producing copies of a newspaper document, whereby the news and other data are printed onto papers.

Economies of Scale

The cost advantage that arises with increased output of a product, where the average cost per unit decreases as the scale of production rises.

Inputs

Resources such as labor, materials, and capital used in the production process to create goods and services.