Low Fly Airline Is Expected to Pay a Dividend of $7

question 13

Multiple Choice

Low Fly Airline is expected to pay a dividend of $7 in the coming year. Dividends are expected to grow at the rate of 15% per year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 14%. The stock of Low Fly Airline has a beta of 3.00. The intrinsic value of the stock is

• A) $46.67.
• B) $50.00.
• C) $56.00.
• D) $62.50.

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Definitions:

Plantwide Predetermined Rate

A single overhead absorption rate used throughout an entire factory or plant for allocating overhead costs to products.

Manufacturing Overhead

All indirect costs related to the manufacturing process, including costs of indirect materials, indirect labor, and other expenses that are not directly tied to the production of goods.

Machine-Hours

A measurement unit representing the number of hours a machine is operational and working on production tasks.

Plantwide Predetermined Rate

A single overhead absorption rate calculated for an entire manufacturing facility to allocate overhead costs to products.