- CFA Exams
- CFA Level I Exam
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 2. Present Value Models: The Dividend Discount Model

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**CFA Practice Question**

FasGrow is a no-growth firm and has two million shares outstanding. It is expected to earn a constant $20 million per year on its assets. If all earnings are paid out as dividends and the cost of capital is 10%, calculate the current price per share for the stock.

A. $200

B. $100

C. $150

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**User Contributed Comments**
6

User |
Comment |
---|---|

robkaz |
dividend/share=20 million/2 million=$10/share P0=D1/COST OF CAPITAL P0=10/.1=$100 |

yesficom |
E/r=20/.1 E/r=200 Mill |

Shelton |
P=D/K=($20m/2m)/10%=$100 |

fedor5 |
attentiveness.... |

aggabad |
Earnings per share/r=P |

maria15 |
I got (A) at first. I forgot to calculate the 2M shares outstanding! |