A Company Has a Current Share Price of $14

question 38

Multiple Choice

A company has a current share price of $14.50 and is expected to pay a $0.85 dividend in one year. If the company's equity cost of capital is 12%, what price would its shares be expected to sell for immediately after it pays the dividend?

• A) $12.18
• B) $15.39
• C) $13.65
• D) $15.29

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Definitions:

Group Depreciation Method

An accounting technique used to depreciate a portfolio of assets collectively, often applied to assets with similar characteristics and useful lives.

Accumulated Depreciation

This represents the total amount of depreciation expense that has been recorded against a fixed asset since it was acquired.

Sum-Of-The-Years'-Digits Depreciation

An accelerated depreciation method that allocates a proportionally higher depreciation in the early years of an asset's life and less in the later years, based on a fraction determined by the asset's useful life.

Economic Life

The period over which an asset is expected to be usable for its intended purpose.