Philadelphia Corporation's Stock Recently Paid a Dividend of $2

question 8

Multiple Choice

Philadelphia Corporation's stock recently paid a dividend of $2.00 per share (D₀ = $2) ,and the stock is in equilibrium.The company has a constant growth rate of 5 percent and a beta equal to 1.5.The required rate of return on the market is 15 percent,and the risk-free rate is 7 percent.Philadelphia is considering a change in policy which will increase its beta coefficient to 1.75.If market conditions remain unchanged,what new constant growth rate will cause the common stock price of Philadelphia to remain unchanged?

• A) 8.85%
• B) 18.53%
• C) 6.77%
• D) 5.88%
• E) 13.52%

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Definitions:

Progressive Taxation

A tax system where the tax rate increases as the taxable base amount increases, ensuring that those who have higher incomes contribute a larger share of their income in taxes, with the aim of achieving a more equitable distribution of wealth.

Political Logrolling

The act of trading favors, particularly in the political arena through mutual voting on each other's proposed bills.

Special-Interest Effect

The impact that a small, focused group might have on policymaking for their own benefit, often at the expense of the larger population.

Government Failure

Situations where government interventions in the economy lead to inefficient outcomes or allocation of resources, often caused by unintended consequences.