You Are Trying to Determine the Appropriate Price to Pay

question 51

Multiple Choice

You are trying to determine the appropriate price to pay for an ordinary share.If you purchase this share, you plan to hold it for 1 year.At the end of the year you expect to receive a dividend of R5.50 and to sell the share for R154.The appropriate rate of return for this share is 16 percent.What should be the current price of this share?

• A) R137.50
• B) R150.22
• C) R162.18
• D) R98.25
• E) R175.83

---

Definitions:

Present Value

The present value of a future amount of money or series of payments, calculated based on a certain rate of return.

Initial Investment

The amount of money used to start a business or project.

Cash Operating Costs

The expenses a company incures during its day-to-day operational activities, usually excluding non-cash costs like depreciation.

Current Salvage Value

The estimated value that an asset can be sold for at the end of its useful life in its present condition.