Exhibit 11.4 Use the Information Below for the Following Problem(S)

question 33

Multiple Choice

Exhibit 11.4
Use the Information Below for the Following Problem(S)
Davenport Corporation's last dividend was $2.70 and the directors expect to maintain the historic 3 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 5 percent for the next three years and the stock will then reach $25 per share.
-Refer to Exhibit 11.4.How much should you be willing to pay for the stock if you feel that the 5 percent growth rate can be maintained indefinitely and you require a 17 percent return?

• A) $22.16
• B) $19.28
• C) $21.32
• D) $23.63
• E) $25.46

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Definitions:

Mean

The arithmetic average of a set of numbers, calculated by dividing the sum of these numbers by the count of the numbers in the set.

Probability Of Success

The likelihood of achieving a favorable outcome in a binomial setting or experiment.

Constant

A fixed value that does not change.

Binomial Distribution

A probability distribution expressing the probability of a fixed number of successes in a fixed number of trials, with only two possible outcomes.