If a Stock's Dividend Is Expected to Grow at a Constant

question 179

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 4 percent in the future and it has just paid a dividend of $6.00 per share,and you have an alternative investment of equal risk that will earn a 7 percent rate of return,what would you be willing to pay per share for this stock today?

• A)$6.66
• B)$54.55
• C)$200.00
• D)$208.00

Realize that accounting is not an exact science and the implications of this on financial report usability.

Recognize the significance of trends and relationships derived from financial statements for evaluating a company’s economic opportunities and risks.

Appreciate the multifaceted uses of financial statements by a range of stakeholders, from regulators to taxing authorities and loan issuance.

Understand the importance of information symmetry and the role of management in sharing accurate information.

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Definitions:

Internal Control

A process implemented by a company to help ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Voucher System

An accounting system that involves the process of creating, approving, and documenting all purchases made by the company through vouchers.

Voucher Register

A comprehensive log that records details of all vouchers issued, including payment information, for accounting and auditing purposes.