HiGlo's Common Stock Sells for $23

question 80

Multiple Choice

HiGlo's common stock sells for $23.50 and its earnings are expected to grow at a rate of 12% annually.What is the current dividend (D₀) for an investor who requires a 15% return?

• A)$0.71
• B)$0.63
• C)$0.34
• D)$0.31

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements; it represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership.

Capital Structure

The composition of a company’s debt and equity used to finance its overall operations and growth.

Market Risk Premium

The additional return an investor requires from a market portfolio over the risk-free rate, compensating for the risk of the investment.

Financial Leverage

The use of borrowed funds to increase the potential return on an investment.