The Merriweather Co

question 35

Multiple Choice

The Merriweather Co. just announced that it is increasing its annual dividend to $1.60 and establishing a policy whereby the dividend will increase by 3.5% annually thereafter. How much will
One share of this stock be worth five years from now if the required rate of return is 12%?

• A) $21.60
• B) $22.36
• C) $23.14
• D) $23.95
• E) $24.79

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Definitions:

Saving Benefits

The advantages gained from setting aside income or resources for future use, including accruing interest, financial security, and preparedness for emergencies.

Substitution Effect

This refers to the economic theory that as prices rise or fall, consumers will replace more expensive items with less costly alternatives.

Income Effect

Refers to the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Tax Rate

The rate at which taxes are applied to an individual or a corporation’s income.