Franklin Corporation Is Expected to Pay a Dividend of $1

question 84

Multiple Choice

Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25) . The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

• A) 6.01%
• B) 6.17%
• C) 6.33%
• D) 6.49%
• E) 6.65%

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Definitions:

Sales

The total revenue a company generates from selling goods or services to customers.

Stockholders' Equity

The ownership stake of shareholders in a corporation, which is the value of the company's assets minus its liabilities.

Average Operating Assets

An indicator of how efficiently a company is using its assets to generate earnings during a period, calculated as the average of the beginning and ending values of the assets for the time period.

Minimum Required Rate Of Return

The lowest return on investment that an investor is willing to accept for a particular investment, often considering the risk involved.