The Reading Co

question 50

Multiple Choice

The Reading Co. has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3% annually. The last dividend it paid was $0.90 a share. What will the company's dividend be in six years?

• A) $0.90
• B) $0.93
• C) $1.04
• D) $1.07
• E) $1.11

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Definitions:

WACC

Weighted Average Cost of Capital; it represents a firm's blended cost of capital across all sources, including both debt and equity.

MCC Schedule

Marginal cost of capital schedule. A plot of the WACC (weighted average cost of capital) against the total amount of capital to be raised in a planning period. The MCC rises as more capital is raised and the costs of individual components experience step function increases.

Capital Spending

Refers to funds spent by a business or government on acquiring or maintaining physical assets such as property, plants, and equipment.

MCC

Marginal Cost of Capital; the cost of obtaining an additional dollar of new capital.