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Task: The Club Auto Parts Company has just recently been organized. It is anticipated to experience no growth for the next 2 years as it identifies its markets and acquires inventory. But, Club will grow at an annual rate of 5% in the third year and beginning with the fourth year must attain a 10% growth rate which it will sustain thereafter. The first dividend (d1) to be paid at the end of the first year is anticipated to be $.50 per share. Investors require a 15% rate of return on clubs stock.

problem1.) What is the current equilibrium stock price?

a. $5.00
b. $9.57
c. $8.75
d. $15.00
e. $12.43

problem2.) What will club's stock price be at the end of the first year?

a. $5.00
b. $9.56
c. $8.76 
d. $15.00
e. $12.43

problem3.) What dividend yield and capital gains yield should an investor in Club expect for the first year?

a.) 0%; 15%
b.) 6%; 9%
c.) 3%; 12%
d.) 12%; 3%
e.) 10%; 5%

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93419

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