Problem 7-24 Negative Growth [LO 1] You've collected the following information from your favorite financial website. Dividend PE Yield Ratio 2.6 3.8 2.2 52-Week Price Lo 10.43 Acevedo .36 33.42 Georgette, Incorporated 1.54 YBM 2.00 Hi 77.40 55.81 130.93 50.41 35.00 Stock (Dividend) 69.50 14.12 Manta Energy .97 20.74 Winter Sports .32 6.2 1.5 6 10 10 Answer is complete but not entirely correct. Required return 4.40 6 28 Close Price 13.90 40.43 88.97 15.60 77 Net Change -.24 -.01 3.07 -.26 .18 According to your research, the growth rate in dividends for Manta Energy for the previous 10 years has been negative 10 percent. If investors feel this growth rate will continue, what is the required return for the stock? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
![Problem 7-24 Negative Growth [LO 1]
You've collected the following information from your favorite financial website.
Dividend PE
Yield
2.6
3.8
52-Week Price
LO
10.43 Acevedo .36
33.42
69.50
14.12 Manta Energy .97
20.74 Winter Sports .32
Hi
77.40
55.81
130.93
50.41
35.00
Stock (Dividend)
Georgette, Incorporated 1.54
YBM 2.00
Answer is complete but not entirely correct.
Required return
4,40
2.2
6.2
1.5
Ratio
6
10
10
6
28
Close
Price
13.90
40.43
88.97
15.60
77
Net Change
-.24
-.01
According to your research, the growth rate in dividends for Manta Energy for the previous 10 years has been negative 10 percent. If
investors feel this growth rate will continue, what is the required return for the stock?
Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.
3.07
-.26
.18](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1e63baf1-ed45-4315-81ab-cb2d683dbe57%2Fdd73522a-d9c9-4700-af02-e6f57f68b48f%2F72uaao8_processed.jpeg&w=3840&q=75)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
