Author Question: A financial analyst expects Crane Service Inc to pay a dividend of 2 per share one year from today, ... (Read 95 times)

rmenurse · **on:** Jul 10, 2018

A financial analyst expects Crane Service Inc to pay a dividend of 2 per share one year from
today, a dividend of 3 per share in years two, and estimates the value of the stock at the end of
year two to be 22.

If your required return on Crane Service stock is 14 , what is the most you
would be willing to pay for the stock today if you plan to sell the stock in two years?
A) 20.99 B) 27.00 C) 26.75 D) 26.90

Question 2

Which of the following differentiates the cost of retained earnings from the cost of newly-issued
common stock?

A) the cost of the pre-emptive rights held by existing shareholders
B) the greater marginal tax rate faced by the now-larger firm
C) the larger dividends paid to the new common stockholders
D) the flotation costs incurred when issuing new securities

LP · **Reply #1 on:** Jul 10, 2018

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