A Share of Common Stock Has a Current Price of $82.50

question 40

Multiple Choice

A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend (D0) on this stock?

• A)$2.00
• B)$3.00
• C)$4.00
• D)$3.30
• E)$6.00

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Definitions:

Economies of Scale

Enterprises gain cost benefits from their operation size, as the cost for each unit produced typically drops when the scale enlarges because fixed expenses are distributed across a greater number of output units.

Efficient Scale

The level of production at which a firm can produce its product at the lowest average cost per unit.

Economies of Scale

Economies of scale describe the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the cost per unit of output decreases with increasing scale.