1.The correct answer is c. It is appropriate to use the constant growth model to estimate a stock’s value even if its growth rate is never expected to become constant.
- The correct answer is e. The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.
- The correct answer is e. One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
- The correct answer is d. $30.21
- The correct answer is b. The calculated price of $15.00 matches the market price, so the required rate of return, rs, is equal to the expected dividend yield plus the expected capital gains yield, or 15% + 5% = 20%.
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