On a Certain Date, Kastbro Has a Stock Price of $37.50

question 24

Multiple Choice

On a certain date, Kastbro has a stock price of $37.50, pays a dividend of $0.64, and has an equity cost of capital of 8%. An investor expects the dividend rate to increase by 6% per year in perpetuity. He then sells all stocks that he owns in Kastbro. Given Kastbro's share price, was this a reasonable action?

• A)No, since the constant dividend growth rate gives a stock estimate of $37.50.
• B)No, since the constant dividend growth rate gives a stock estimate greater than $37.50.
• C)Yes, since the constant dividend growth rate gives a stock estimate greater than $37.50.
• D)No, since the difference between his calculated stock price and the actual stock price most likely indicates that his estimate of dividend growth rate was incorrect.

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Definitions:

Insulin-Triggering Foods

Foods that cause the pancreas to release insulin, a hormone that helps regulate blood sugar levels.

Insulin Receptors

Proteins on the surface of cells that bind insulin, triggering the cell to absorb glucose from the bloodstream.

Energy Source

Any substance or system that provides power to operate or perform work, typically through chemical, electrical, or mechanical means.

Pancreatic Polypeptide

A hormone produced by the pancreas that aids in the regulation of pancreatic secretion activities and the control of food intake.