You Observe Thundering Herd Common Stock Selling for $40

question 90

Multiple Choice

You observe Thundering Herd Common Stock selling for $40.00 per share.The next dividend is expected to be $4.00,and is expected to grow at a 5% annual rate forever.If your required rate of return is 12%,should you purchase the stock?

• A) yes, because the present value of the expected future cash flows is greater than $40
• B) no, because the present value of the expected future cash flows is less than $40
• C) yes, because the present value of the expected future cash flows is less than $40
• D) no, because the present value of the expected future cash flows is greater than $40

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