Exhibit 11.8 Use the Information Below for the Following Problem(S)

question 29

Multiple Choice

Exhibit 11.8
Use the Information Below for the Following Problem(S)
Fast Grow Corporation is expecting dividends to grow at a 20% rate for the next two years. The corporation just paid a $2 dividend and the next dividend will be paid one year from now. After two years of rapid growth dividends are expected to grow at a constant rate of 9% forever.
-Refer to Exhibit 11.8.Assume that the annual dividend grows at a constant rate of 9% indefinitely instead of the supernormal growth.How much is the stock worth if dividends grow annually at 9%?

• A) $40.00
• B) $43.60
• C) $45.60
• D) $47.80
• E) $52.40

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Definitions:

MR = MC

A condition in economics where marginal revenue equals marginal cost, often used to determine the optimal level of output in perfectly competitive markets.

ATC

Average Total Cost, which is the total cost divided by the quantity of output produced. It represents the per-unit production cost at various levels of output.

Earning A Profit

The financial gain realized when the total revenues generated from a business activity exceed the total costs associated with that activity.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase at various prices.