Question

1. Medical Corporation of America (MCA) has a current stock price of $35, and its last dividend (Do) 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? O r d! t bo to 10 rbv Choice: $43.68 Choice: $48.95 bivio Choice: $52.100 Choice: $68.75 m m to BOBO on T o n tor 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? b o Choice: $2.38 Choice: $3.12 al 10 d Choice: $5. 00 Choice: 12% o 0 leh nne

Answer 1

You have asked so many unrelated questions in a single post. I have addressed the first two. Please post the balance questions separately, one by one.

Q - 1

P0 = D1 / (r - g) = D0 x (1 + g) / (r - g)

Hence, 35 = 2.5 x (1 + g) / (12% - g)

Hence, g = (35 x 12% - 2.5) / (2.5 + 35) = 4.53%

Hence, price after 5 years = P5 = P0 x (1 + g)⁵ = 35 x (1 + 4.53%)⁵ =  43.68

Hence, the first choice is correct.

Q - 2

D3 = D0 x (1 + g)³ = 2 x (1 + 6%)³ = 2.38

Hence, the first choice is correct.