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:

Trading Securities

Financial assets that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Fair Value

An estimated market value of an asset or liability based on current market prices or valuations.

Temporary Investments

Short-term investments made by a company in securities that can be easily converted into cash, typically held for a year or less.

Market Price

The current market price for acquiring or disposing of an asset or service.