Combined Communications Is a New Firm in a Rapidly Growing

question 39

Multiple Choice

Combined Communications is a new firm in a rapidly growing industry.The company is planning on increasing its annual dividend by 15 percent a year for the next 4 years and then decreasing the growth rate to 3.5 percent per year.The company just paid its annual dividend in the amount of $0.20 per share.What is the current value of one share of this stock if the required rate of return is 15.5 percent?

• A)$1.82
• B)$2.04
• C)$2.49
• D)$2.71
• E)$3.05

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Definitions:

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of accounts receivable that may not be collected.

Percentage of Receivables

A method for estimating the allowance for doubtful accounts based on the expected percentage of accounts receivable that may not be collectible.

Write Offs

Financial accounting action where the value of an asset is declared worthless, removing it from balance sheet accounts due to loss or impairment.