Ashley Owns Stock in a Company Which Has Consistently Paid

question 49

Multiple Choice

Ashley owns stock in a company which has consistently paid a growing dividend over the last five years. The first year Ashley owned the stock, she received $1.71 per share and in the fifth year, she received $2.89 per share. What is the growth rate of the dividends over the last five years?

• A) 7 percent
• B) 11 percent
• C) 12 percent
• D) 5 percent

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Definitions:

Debt-Equity Ratio

A metric for evaluating a firm's financial leverage, determined by dividing its total debts by the equity held by shareholders.

Cost of Debt

The actual rate a firm incurs on its overall debt, representing the cost of acquiring funds.

Equity Risk

The risk of loss associated with fluctuations in the price of equities or stocks.

M&M Proposition I

A principle in corporate finance that asserts the market value of a firm is unaffected by the capital structure, assuming no taxes and perfect markets.