Carlson Products,a Constant Growth Company,has a Current Market (And Equilibrium)stock

question 26

Multiple Choice

Carlson Products,a constant growth company,has a current market (and equilibrium) stock price of $20.00.Carlson's next dividend, ,is forecasted to be $2.00,and Carlson is growing at an annual rate of 6 percent.Carlson has a beta coefficient of 1.2,and the required rate of return on the market is 15 percent.As Carlson's financial manager,you have access to insider information concerning a switch in product lines which would not change the growth rate,but would cut Carlson's beta coefficient in half.If you buy the stock at the current market price,what is your expected percentage capital gain?

• A) 23%
• B) 33%
• C) 43%
• D) 53%
• E) There would be a capital loss.

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Definitions:

Retail Store

A physical establishment that sells goods or services directly to consumers for their personal or household use.

Product-Design Process

A series of steps that businesses follow to develop, prototype, test, and finalize the design of a new product, focusing on meeting consumer needs and preferences.

Production Order

An authorized instruction or command to begin the manufacturing process of a specific quantity of goods within a scheduled timeframe.

Customer Order

A request made by a customer for the purchase of goods or services provided by a company.