Use the Dividend Growth Model to Determine the Required Rate

question 30

Multiple Choice

Use the dividend growth model to determine the required rate of return for equity.Your firm intends to issue new common stock.Your investment bankers have determined that the stock should be offered at a price of $45.00 per share and that you should anticipate paying a dividend of $1.50 in one year.If you anticipate a constant growth in dividends of 3.00% per year and the investment banking firm will take 5.00% per share as flotation costs,what is the required rate of return for this issue of new common stock?

• A)6.51%
• B)6.83%
• C)7.08%
• D)There is not enough information to answer this question.

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Area

The amount of space inside a two-dimensional region, such as a floor; area is measured in square units; the living space in a property.

Diagonals

Straight lines connecting two non-adjacent vertices in a polygon or polyhedron.

Rectangle

A quadrilateral with four right angles and two pairs of parallel and equal sides.

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In construction, a flat surface capable of supporting weight, similar to a floor, but typically constructed outdoors and often connected to a building.