Gardner Electric has a beta of 0.88 and an expected dividend growthrate of 4.00% per...

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 11.75%. Using the SMI, what is the firm’s required rate of return?

Expert Solution

required rate of return = risk free rate + beta * market risk premium

marke risk premium by SML= market return- risk free rate

=11.75%-5.25%

=6.5%

required rate of return = risk free rate + beta * market risk premium

=5.25%+0.88*6.5%

=10.97%

jeff jeffy answered 2 years ago

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per...

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 10.75%. Using the SML, what is the firm's required rate of return? Select the correct answer. a. 12.22% b. 12.26% c. 12.30% d. 12.34% e. 12.18%

Stock X has a beta of 0.88 and an expected return of 10.8 percent. Stock Y...

Stock X has a beta of 0.88 and an expected return of 10.8 percent. Stock Y has a beta of 1.15 and an expected return of 13.1 percent. What is the risk-free rate of return assuming that both stock X and stock Y are correctly priced? Multiple Choice: 3.30 percent 2.06 percent 1.20 percent 3.50 percent 1.10 percent

Suppose Intel stock has a beta of 1.52, whereas Boeing stock has a beta of 0.88....

Suppose Intel stock has a beta of 1.52, whereas Boeing stock has a beta of 0.88. If the risk-free interest rate is 4.1% and the expected return of the market portfolio is 12.2%, according to the CAPM, a. What is the expected return of Intel stock? b. What is the expected return of Boeing stock? c.What is the beta of a portfolio that consists of 70 % Intel stock and 30% Boeing stock? d. What is the expected return of...

1. HF Corporation just paid a dividend of $4.00. The dividend is expected to grow by...

1. HF Corporation just paid a dividend of $4.00. The dividend is expected to grow by 8% this year, 6% in year two and 5% in year three. Beginning in year four, the dividend is expected to grow at a constant rate of 4%. With a required return of 10%, what is a share of this company’s stock worth today? 2. TP Company report FCF of $800,000 in the most recently completed year. FCF is expected to grow by 10%...

Dunder-Mifflin has a beta of 1.8 and just paid a dividend of $0.85 that is expected...

Dunder-Mifflin has a beta of 1.8 and just paid a dividend of $0.85 that is expected to grow at 3.5%. If the risk-free rate is 3% and the expected market return is 9%, what should be the price of the stock? A. $17.35 B. $8.54 C. $8.25 D. $17.95

A company has been paying a regular cash dividend of $4.00 per share each year. It...

A company has been paying a regular cash dividend of $4.00 per share each year. It pays out all of its earnings as dividends and is not expected to grow. There are 100,000 shares outstanding trading for $80.00 per share after the payment of the $4.00 per share dividend (i.e., after the ex-dividend date; prior to the ex-dividend date, the price included the value of the dividend payment). The company has enough cash on hand to pay dividends. Suppose that...

Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend...

Warf Co. just paid a dividend of $4.00 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent, after which the company will keep a constant growth rate, forever. If the required return on Warf stock is 13 percent. Required: a) what will a share of stock sell for today? b) What conditions must...

TechSvx earned $5.00 per share and paid a $4.00 dividend per share last year, and is...

TechSvx earned $5.00 per share and paid a $4.00 dividend per share last year, and is expected to continue to pay out 80% of its earnings as dividends for the foreseeable future. The firm is expected to generate a 14% return on equity in the future, and you require a 15% return on the stock. a. What should be the value of the stock today (according to the constant growth rate dividend discount model)? b. What should be the value...

Dolemite mines just paid a dividend of $5.50, its dividends are expected to grow at 4.00%...

Dolemite mines just paid a dividend of $5.50, its dividends are expected to grow at 4.00% forever. Investors required return on the stock is 7.50%. What is Dolemite's dividends for the next two years? If you were going to buy the stock today and sell it next year, at what price would you expect to sell the stock for, assuming the growth rate and required return remains unchanged? Stock Price in Year 1: ?? What is the present value of...

1- Expected cash dividends are $4.00, the dividend yield is 6%, flotation costs are 7% of...

1- Expected cash dividends are $4.00, the dividend yield is 6%, flotation costs are 7% of price, and the growth rate is 3%. Compute the approximate cost of new common stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) 9.20% 10.45% 9.45% 11.55% 2- Pedro Gonzalez will invest $22,000 at the beginning of each year for the next 8 years. The interest rate is 11 percent. What is the future value? Use Appendix C to calculate...

Question