A Company Is Expected to Pay a Dividend of $3

question 7

Multiple Choice

A company is expected to pay a dividend of $3.20 per share every year indefinitely and the equity cost of capital for the company is 10%. What price would an investor be expected to pay per share next year?

• A) $16.00
• B) $24.00
• C) $32.00
• D) $8.00

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Definitions:

Operating Income

A measure of a company's profit that excludes non-operating expenses and revenues, focusing solely on the income generated from its core business operations.

Inventory Levels

The quantity of goods and materials on hand at a particular time within a company.

Variable Costing Income Statement

A financial statement showing the costs that vary directly with the level of production, separated from fixed costs.

Variable Costs

Costs that vary in relation to a company's operations.