Exhibit 12.3 Use the Information Below for the Following Problem(S)

question 118

Multiple Choice

Exhibit 12.3
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 55 percent when the rate on long-term government bonds falls to 9 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 8 percent and investors will require a 7 percent return. The return on equity will be 13 percent.
-Refer to Exhibit 12.3.To what price will the market rise if the earnings expectation is $1.5?

• A) $138.42
• B) $90.36
• C) $71.74
• D) $105.30
• E) $85.14

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Definitions:

Fried Twinkies

A snack created by deep-frying Twinkies, often resulting in a crispy outside and soft, warm inside, popular in fairs and festivals.

Tax Burden

The total impact of taxes on an individual or business, including the effects on income and purchasing power.

Producers

Individuals or organizations that create goods or services for sale or exchange in an economic system.

Price Paid

The amount of money exchanged for a good or service at the time of a transaction.