The Shoe Box Will Not Pay a Dividend for the Next

question 116

Multiple Choice

The Shoe Box will not pay a dividend for the next two years. The following two years, it will pay annual dividends of $1 per share. Starting in Year 5, the dividends will increase by 4 percent annually. The discount rate is 8 percent. What is the value of this stock today?

• A)$18.18
• B)$20.64
• C)$22.63
• D)$24.08
• E)$27.09

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Definitions:

Southwestern Bell

A former American telecommunications company that was one of the seven original Regional Bell Operating Companies after the U.S. Department of Justice broke up the American Telephone & Telegraph Company in 1984.

Legal Barrier

Any law or regulation that limits or controls the entrance of a firm into an industry or the launch of a new product.

Licensing

A regulatory process that allows individuals and companies to operate legally in a professional field or to sell particular goods and services.

Patents

Legal rights granted to inventors to exclusively exploit their inventions for a certain period.