The Current Yield on Alpha's Common Stock Is 5

question 40

Multiple Choice

The current yield on Alpha's common stock is 5.2%. The company just paid a $2.10 dividend. The rumor is that the dividend will be $2.3 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on Alpha's stock?

• A) 10.70%
• B) 12.31%
• C) 18.29%
• D) 20.01%
• E) 24.21%

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Definitions:

Contribution Margin

The amount remaining from sales revenue after variable production costs and variable expenses have been deducted; used to cover fixed costs and to generate profit.

Traceable Fixed Expenses

Fixed costs that can be directly linked to a specific business segment, product, or operation and would disappear if the segment was discontinued.

Common Fixed Expenses

Fixed costs that are not directly attributable to a specific product or service line and must be paid regardless of the level of production or sales.

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, indicating how much revenue contributes to covering fixed costs.