Using the Stock Valuation Formula Calculate the Value of a Share

question 94

Multiple Choice

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $5 in dividends,in addition the dividends are expected to grow at a rate of 4 percent forever,and the investor's required rate of return is 12 percent.

• A)$18.75
• B)$39.75
• C)$62.50
• D)$68.50

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Definitions:

Period Costs

Expenses that are not directly tied to production activity and are expensed in the period they are incurred.

Variable Selling Expense

Costs that vary directly with the volume of sales, such as commissions and shipping charges.

Fixed Selling Expense

Costs associated with the selling process that do not vary with the level of sales, such as salaries of sales personnel and rent for sales space.

Variable Administrative Expense

Indirect costs that change in proportion with the level of a company’s production or sales activities.