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:

Oppression

The exercise of authority or power in a burdensome, cruel, or unjust manner.

Novation

is the process of substituting a new obligation or contract for an old one, with consent from all parties involved.

Right Of Appraisal

See dissenter’s rights.

Reverse Share Split

A corporate action in which a company reduces the total number of its outstanding shares, typically to increase the per-share price.