Simplicity Is a Relatively New Firm That Appears to Be

question 392

Multiple Choice

Simplicity is a relatively new firm that appears to be on the road to great success. The company paid their first annual dividend yesterday in the amount of $0.15 a share. The company plans to double each annual dividend payment for the next four years. After that time, they are planning on paying a constant dividend of $2.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 13.45%?

• A) $12.32
• B) $12.77
• C) $13.77
• D) $14.22
• E) $14.37

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Definitions:

Marketing Department

A division within a company that focuses on strategies and tactics to promote products or services to the target audience.

Personal Computer

A compact, relatively inexpensive computer designed for individual use, capable of running general-purpose applications and accessing the internet.

Cost Per Unit

The total cost to produce a single unit of product, including fixed and variable costs.

Fixed Costs

Costs that do not change with the level of output or production, such as rent, salaries, and insurance premiums.