Galaxy Air,previously a No-Growth Firm,has Two Million Shares Outstanding

question 18

Multiple Choice

Galaxy Air,previously a no-growth firm,has two million shares outstanding.Until now,it consistently earned $20 million per year on its assets.(It has no debt and pays out all earnings as dividends.Its cost of capital is 10%.) Due to its newly appointed CEO,Galaxy Air is now able to squeeze out 1% annual growth by plowing back 5% of earnings.Calculate its stock price per share.

• A)$200.00
• B)$106.61
• C)$100.00
• D)$110.10

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Definitions:

Warranty Costs

Expenses incurred by a company for repairing, replacing, or refunding products that fail to meet specified criteria during the warranty period.

Minor Defects

Small or negligible flaws in a product or system that do not significantly impair its usability or functionality.

Major Defects

Significant flaws or imperfections in a product, property, or system that can affect its performance, value, or usability.