- 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
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
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! |