Exhibit 14.5
Use the Information Below for the Following Problem(S)
$$\begin{array} { l c c }
& \text { Wal-Elue } & \text { Industry } \
\text { DPS } & 1.00 & 1.50 \
\text { Total As5et Tunover } & 3.20 & 2.50 \
\text { Net Profit Marpin } & 3.50 \% & 3.00 \% \
\text { EpS } & 4.00 & 3.00 \
\text { Total As5ets/Equity } & 3.00 & 4.00
\end{array}$$
-A firm has a current price of $40 a share,an expected growth rate of 11 percent and expected dividend per share (D1)of $2.Given its risk you have a required rate of return for it of 12 percent.Assuming that you expect the stock price to increase to $42 during the investment period,your expected rate of return and decision would be:
A) 10% - do not buy
B) 12% - do not buy
C) 14% - buy
D) 16% - buy
E) 18% - buy

Question

Exhibit 14.5
Use the Information Below for the Following Problem(S)
 $$\begin{array} { l c c } 
& \text { Wal-Elue } & \text { Industry } \
 \text { DPS } & 1.00 & 1.50 \
\text { Total As5et Tunover } & 3.20 & 2.50 \
\text { Net Profit Marpin } & 3.50 \% & 3.00 \% \
\text { EpS } & 4.00 & 3.00 \
\text { Total As5ets/Equity } & 3.00 & 4.00
\end{array}$$
-A firm has a current price of $40 a share,an expected growth rate of 11 percent and expected dividend per share (D1)of $2.Given its risk you have a required rate of return for it of 12 percent.Assuming that you expect the stock price to increase to $42 during the investment period,your expected rate of return and decision would be:
A) 10% - do not buy
B) 12% - do not buy
C) 14% - buy
D) 16% - buy
E) 18% - buy

Quizplus · Accepted Answer

$$\text { Expected rate of return } = \frac { \$ 42.00 - \$ 40.00 + \$ 2.00 } { \$ 40.00 } = \$ 4.00 / \$ 40.00 = 10 \%$$ Do not buy,expected return (10%)does not exceed the required return (12%).

Exhibit 14 -A Firm Has a Current Price of $40 a Share,an