Consider Trying to Value a Company Called Etail

question 13

Multiple Choice

Consider trying to value a company called Etail.com on January 1.It pays dividends annually on Dec.31.Yesterday's dividend was $1.Dividends are expected to grow for the next 2 years at 10% and then settle down to a long-run growth rate of 5% in perpetuity.Because of the initial riskiness of the company,investors required a 20% rate of return over the first 2 years,but only a 12% rate of return thereafter.What is the fair price for the stock today,January 1?

• A) $13.76
• B) $36.77
• C) $14.36
• D) $12.75
• E) $14.96

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Definitions:

Cultural Eutrophication

Over-enrichment caused by human activities, leading to excessive bacterial growth and oxygen depletion of a body of water.

Biogeochemical Cycle

The circulation of elements and substances through living organisms, the Earth, its atmosphere, and the oceans, contributing to ecosystem functioning and sustainability.

Phosphorus

A chemical element essential for life, involved in many cellular processes, including energy transfer and the formation of bones and teeth.

Biogeochemical Pathway

Cycles that involve the movement and chemical transformation of substances through biological, geological, and chemical processes on Earth.