Exhibit 11.7 Use the Information Below for the Following Problem(S)

question 60

Multiple Choice

Exhibit 11.7
Use the Information Below for the Following Problem(S)
Consider a firm that has just paid a dividend of $1.5. An analyst expects dividends to grow at a rate of 9% per year for the next three years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%.
-Refer to Exhibit 11.7.The present value today of dividends for years 1 to 3 is

• A) $4.67
• B) $3.08
• C) $5.67
• D) $4.5
• E) $1.53

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Definitions:

Annual Financial Advantage

Describes the financial benefit or gain achieved by an entity over the course of a fiscal year, encompassing all revenue streams and savings.

Variable Costs

Costs that vary directly with the level of business activity.

Variable Costs

Costs that vary in total directly and proportionately with changes in the activity level or volume of output.

Financial Advantage

The benefit or edge that a business or individual has that allows them to generate more income or wealth compared to others.