Solve EITHER “A” or “B”. Make sure to indicate which problem…

Solve EITHER “A” or “B”. Make sure to indicate which problem you are solving……i.e. “A” or “B”! Option A: Guru Tech Inc. has stock that just paid a dividend of $10. This firm’s beta is estimated to be 1.2. Due to the firm’s maturity, its growth is estimated to be 8%. If the S&P 500 is currently returning 12% and Treasury bonds are returning 2%, what is this firm’s after-tax cost of equity? Assume a tax rate of 40%. (2) —————————————————————-OR—————————————————————————————— Option B: Houston Technology’s beta is estimated to be 1.4. The firm’s stock is expected to pay a dividend of $5 at the end of this year and is currently selling for $65. The S&P 500 is currently returning 14%. If the firm expects constant growth in the future of 8%, what is the firm’s after-tax cost of equity? Assume a tax rate of 40%. (2)

You are considering purchasing the stock of Arnold Incorpora…

You are considering purchasing the stock of Arnold Incorporated stock which is expected to pay a dividend of $6. The stock is currently selling for $50 and is expected to have dividend growth of 5% based on its past revenue growth. Currently, the S&P is returning an average of 12% which results in a required return for this stock of 15%. How much should you pay for this stock? (2)