On a Certain Date,Hasbro Has a Stock Price of $37

question 22

Multiple Choice

On a certain date,Hasbro has a stock price of $37.50,pays a dividend of $0.64,and has an equity cost of capital of 8%.An investor expects the dividend rate to increase by 6% per year in perpetuity.He then sells all stocks that he owns in Hasbro.Given Hasbro's share price,was this a reasonable action?

• A)No,since the constant dividend growth rate gives a stock estimate of $37.50.
• B)No,since the constant dividend growth rate gives a stock estimate greater than $37.50.
• C)Yes,since the constant dividend growth rate gives a stock estimate greater than $37.50.
• D)No,since the difference between his calculated stock price and the actual stock price most likely indicates that his estimate of dividend growth rate was incorrect.
• E)Yes,since the constant dividend growth rate gives a stock estimate less than $37.50.

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Definitions:

Operating Segment

A component of a business that engages in business activities from which it may earn revenues and incur expenses, including segments with related products, services, or geographic areas.

Quick Assets

Liquid assets that can be rapidly converted into cash without significantly affecting their value, including cash, marketable securities, and receivables.

Current Receivables

Financial assets expected to be converted into cash within one year, including money owed by customers (accounts receivable).