The Absolute Finance Company (AFC) Earned $5 a Share Last

question 29

Multiple Choice

The Absolute Finance Company (AFC) earned $5 a share last year and paid a dividend of $2 per share. Next year, you expect AFC to earn $6 a share next year and continue its payout ratio. Assume that you expect to sell the stock for $45 a year from now. If you require a 13 percent return on this stock, how much would you be willing to pay for it?

• A) $41.95
• B) $43.21
• C) $45.13
• D) $46.72
• E) $47.40

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