Author Question: Assume that the stock of Perry Corporation has just paid an annual dividend of 5, and that this ... (Read 32 times)

dmcintosh · **on:** Jul 10, 2018

Assume that the stock of Perry Corporation has just paid an annual dividend of 5, and that this dividend is expected to grow for the next 2 years at an annual growth rate of 20, and then grow indefinitely at an annual growth rate of 10.

If the risk-free rate is 5, the expected return on the market is 15, and the firm's beta is 0.80, how much should you be willing to pay for this stock?
A) 203.28
B) 217.70
C) 256.81
D) 315.09
E) 360.25

Question 2

A real estate agent wants you to buy a plot of land today for 60,000 and he promises that you can sell it back to him in 7 years for 100,000.

If you can earn 9 on alternative investments, then what is the present value of the sales proceeds? Is this a worthwhile investment?
A) 54,703.42; it is not a worthwhile investment.
B) 54,703.42; it is a worthwhile investment.
C) 61,294.51; it is not a worthwhile investment.
D) 61,294.51; it is a worthwhile investment.
E) 60,000; not enough information.