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Use the appendix to answer the questions below. The company trades at $13/share and pays 6.5% on 10- year bonds. The T-bill rate is 2.5%, has a beta of 1.2, and the market return is 9%; the dividend payout policy has 1 million shares outstanding the dividend payout policy is 35%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) 31. Calculate the Sustainable growth rate. 32. Calculate the cost of equity. 33. Calculate the cost of capital. 34. Calculate the expected price of the stock. 35. What will be your recommendation?

Use the appendix to answer the questions below. The company trades at $13/share and pays 6.5% on 10- year bonds. The T-bill rate is 2.5%, has a beta of 1.2, and the market return is 9%; the dividend payout policy has 1 million shares outstanding the dividend payout policy is 35%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) 31. Calculate the Sustainable growth rate. 32. Calculate the cost of equity. 33. Calculate the cost of capital. 34. Calculate the expected price of the stock. 35. What will be your recommendation?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Use the appendix to answer the questions below. The company trades at $13/share and pays 6.5% on 10- year bonds. The T-bill rate is 2.5%, has a beta of 1.2, and the market return is 9%; the dividend payout policy has 1 million shares outstanding the dividend payout policy is 35%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) 31. Calculate the Sustainable growth rate. 32. Calculate the cost of equity. 33. Calculate the cost of capital. 34. Calculate the expected price of the stock. 35. What will be your recommendation?
Transcribed Image Text:Use the appendix to answer the questions below. The company trades at $13/share and pays 6.5% on 10- year bonds. The T-bill rate is 2.5%, has a beta of 1.2, and the market return is 9%; the dividend payout policy has 1 million shares outstanding the dividend payout policy is 35%. Should I buy the stock? Why? (use Gordon's growth model in your calculations). (10 points) 31. Calculate the Sustainable growth rate. 32. Calculate the cost of equity. 33. Calculate the cost of capital. 34. Calculate the expected price of the stock. 35. What will be your recommendation?
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