Orwell Building Supplies' Last Dividend Was $1

question 35

Multiple Choice

Orwell Building Supplies' last dividend was $1.75.Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever.Its required return (r_s) is 12%.What is the best estimate of the current stock price?

• A) $41.58
• B) $42.64
• C) $43.71
• D) $44.80
• E) $45.92

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Definitions:

Operating Income

Refers to the profit realized from a business's core operating activities, excluding deductions of interest and taxes.

Absorption Costing

Absorption costing is an accounting method that includes all manufacturing costs (both variable and fixed) in the cost of a product.

Variable Costing

Variable costing is an accounting method that only considers variable costs (costs that change with production levels) in the calculation of product or service costs, excluding fixed costs.

Gross Profit

The difference between sales revenue and the cost of goods sold, directly indicating the efficiency of core business activities.