Question

1. Medical Corporation of America (MCA) has a current stock price of $35, and its last...

1. Medical Corporation of America (MCA) has a current stock price of $35, and its last dividend (D0) was $2.50. In view of MCA’s strong financial position, its required rate of return is 12%. If MCA’s dividends are expected to grow at a constant rate in the future, what is the firm’s expected stock price in five years?

Choice: $43.68 Choice: $48.95 Choice: $52.10 Choice: $68.75

2. A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2 per share. The dividend is expected to grow at a constant rate of 6% per year. The stock’s required rate of return is 12%. What is the expected dollar dividend at the end of three years?

Choice: $2.38 Choice: $3.12 Choice: $5.00 Choice: 12%



3. A broker offers to sell you shares of Bay Area Healthcare, which just paid a dividend of $2.50 per share. The dividend is expected to grow at a constant rate of 5% per year. The stock’s required rate of return is 12%. What would be a price for this stock?

Choice: $32.25 Choice: $37.50 Choice: $43.10 Choice: $45.65

Homework Answers

Answer #1

1)

Stock price in 5 years (P5) D6÷(r-g)
Here,
Expected dividend (D6) $                      3.26 =2.5*(1+4.53%)^6
Required return ( r) 12.00%
Growth rate (g) 4.53% =(35*12%-2.5)/(35+2.5)
Stock price in 5 years (P5) $            43.68
3.26/(12%-4.53%)
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