Zephyr Inc

question 63

Multiple Choice

Zephyr Inc. sells wind based systems for generating electricity. The company pays no dividends, but you estimate the stock will be worth $50 per share 5 years from now and you require a 15% rate of return for stock investments of this type. What price should you be willing to pay for this stock?

• A) $12.50
• B) $24.86
• C) $43.48
• D) $57.50

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Definitions:

Creditors

Individuals or institutions that lend money or extend credit and are owed repayment.

Preferred Share

Equity shares in a corporation, which provide dividends to its holders before dividends are distributed to common shareholders, and typically have no or restricted voting rights.

Specific Dividend

A dividend paid out in forms other than cash, such as stocks or other assets, to shareholders.

Par-value Share

A type of stock with a nominal face value that companies define in their corporate charter.