The Hart Mountain Company Has Recently Discovered a New Type

question 5

Multiple Choice

The Hart Mountain Company has recently discovered a new type of kitty litter which is extremely absorbent. It is expected that the firm will experience (begin¬ning now) an unusually high growth rate (20 percent) during the period (3 years) it has exclusive rights to the property where the raw material used to make this kitty litter is found. However, beginning with the fourth year the firm's competition will have access to the material, and from that time on the firm will achieve a normal growth rate of 8 percent annually. During the rapid growth period, the firm's dividend payout ratio will be relatively low (20 percent) in order to conserve funds for reinvest¬ment. However, the decrease in growth in the fourth year will be accom¬panied by an increase in dividend payout to 50 percent. Last year's earnings were E0 = $2.00 per share, and the firm's required return is 10 percent. What should be the current price of the common stock?

• A) $66.50
• B) $87.96
• C) $71.53
• D) $61.78
• E) $93.50

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Definitions:

Eponychium

The small band of skin at the base of the fingernail or toenail, also known as the cuticle.

Lunula

The visible part of the root of the nail, often seen as a white crescent shape at the base of the fingernail or toenail.

Nail Root

The part of a fingernail or toenail that is embedded in the skin and gives rise to the visible nail.

Arrector Pili

Small muscles attached to hair follicles that, when contracted, cause the hair to stand upright (goosebumps).