Eastern Auto Parts' last dividend was Do = 0.50, and the company expects to experience no growth in the next 2 years.
However eastern will grow at an annual rate of 5 in the third and fourth years, and, beginning with the fifth year, it should attain a 10 growth rate which it should sustain thereafter. Eastern has a cost of capital of 12. What should be the present price per share of Eastern common stock?
A) 19.26
B) 31.87
C) 30.30
D) 20.84
E) 19.95
Question 2
Consider the two assets outlined in the table below. What is the beta of the two asset portfolio given that 40 is invested in X?
Asset Expected Return Beta
X 12 0.40
Risk Free 5 0
A) 0.026
B) 0.085
C) 0.160
D) 0.190
E) 0.220
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