Wayne Enterprises Inc pays a regular annual dividend on its common shares which is expected to grow annually in perpetuity at the rate of 3. Today is Dec 31 and Wayne pays its dividend on January 1 (tomorrow). Last year, the dividend was 0.
75 per share. Ignoring settlement, taxes and other institutional issues, what is a fair price for the stock today if investors expect an annual return of 9?
A) 12.88
B) 13.26
C) 13.41
D) 13.63
E) 14.03
Question 2
The Jones Company has decided to undertake a large project. Consequently, there is a need for additional funds. The financial manager plans to issue preferred stock with a perpetual annual dividend of 5 per share and a par value of 30.
If the required return on this stock is currently 20, what should be the stock's market value?
A) 150
B) 100
C) 50
D) 25
E) 10
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