Cherry Auto Sales Just Opened and Does Not Expect to Pay

question 104

Multiple Choice

Cherry Auto Sales just opened and does not expect to pay a dividend during its first year.At the end of its second year,Cherry's owners expect to pay a $2.00 dividend and plan to increase it 7% annually.If the required return is 20%,what should Cherry's stock price be?

• A) $11.42
• B) $10.92
• C) $13.06
• D) $12.82
• E) $15.48

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Definitions:

Profits

The financial gain achieved when the revenue from business activities exceeds the expenses, costs, and taxes involved in sustaining the activity.

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A type of cancer that begins in the colon (the longest part of the large intestine), often indicated by polyps that can turn cancerous over time.

Bone Cancer

A type of cancer that originates in the cells of the bones, causing pain, swelling, and weakening of the affected bones.