A firm distributes 50% of its earnings as dividends, and its dividends have been growing at an
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Question:
a. If the required rate of return is 11%, what should the current stock price be?
b. The firm increases leverage, making its EPS go up by 16%. If the stock's growth rate and the required rate of return do not change, what will the stock price become?
c. If adding leverage makes the required rate of return rise to 12%, what will the stock price be?
d. Why would adding leverage affect the required rate of return?
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1305637108
6th edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
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