CBC Stock Is Expected to Sell for $22 Two Years

question 233

Multiple Choice

CBC stock is expected to sell for $22 two years from now. Supernormal growth of 5% is expected for the next two years. The current dividend is $1 and the required return is 15%. What constant
Growth rate is expected beginning in year 3?

• A) 6.5%
• B) 6.7%
• C) 8.1%
• D) 8.4%
• E) 9.5%

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Definitions:

Operating Section

A part of the cash flow statement that shows the cash inflows and outflows from a company's primary operating activities.

Indirect Method

A way of reporting cash flows from operating activities on the cash flow statement where net income is adjusted for non-cash transactions, deferrals, and accruals.

Statement of Cash Flows

A financial report detailing how adjustments in balance sheet items and income influence cash and cash equivalents, segmented into operating, investing, and financing sections.

Indirect Method

A cash flow statement format that starts with net income and adjusts for transactions affecting operational cash flows, without directly listing them.