Praetorian Industries Will Pay a Dividend of $2

question 39

Multiple Choice

Praetorian Industries will pay a dividend of $2.50 per share this year and has an equity cost of capital of 8%. Praetorian's shares are currently trading at $84 per share. By comparing Praetorian with similar firms, an investor expects that its dividends will grow by up to 5% per year. What is the best next step that the investor should take regarding Praetorian's shares?

• A)Short Praetorian's shares.
• B)Sell all Praetorian shares that she owns.
• C)Revise Praetorian's equity cost of capital.
• D)Revise her estimate of Praetorian's dividend growth.

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Definitions:

Cost Leadership

A competitive strategy where a company aims to become the lowest-cost producer in its industry or market.

Labor Specialization

The process of dividing work into unique tasks performed by different individuals, improving efficiency and expertise.

Market Share

The proportion of total sales or revenue that a company or product secures within a particular market, compared to competitors.

Cost Leadership Strategy

A business strategy focusing on gaining a competitive advantage by becoming the lowest cost producer in the industry.