Jackson Company The Jackson Company Has Just Paid a Dividend of $3.00

question 74

Multiple Choice

Jackson Company
The Jackson Company has just paid a dividend of $3.00 per share on its common stock, and it expects this dividend to grow by 10 percent per year, indefinitely. The firm has a beta of 1.50; the risk-free rate is 10 percent; and the expected return on the market is 14 percent. The firm's investment bankers believe that new issues of common stock would have a flotation cost equal to 5 percent of the current market price.
-Refer to Jackson Company.How much should an investor be willing to pay for this stock today?

• A) $62.81
• B) $70.00
• C) $43.75
• D) $55.00
• E) $30.00

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Definitions:

Market Rate

The prevailing price determined by supply and demand in the open market for services or commodities.

Interest

The payments made for the use of money.

Interest Rate

The interest rate is the amount charged by a lender to a borrower for the use of assets expressed as a percentage of the principal, often noted annually.

Total Investment

The overall amount of money allocated to purchasing assets or towards spending that is intended to generate future revenue.