If Next Year's Dividend Is Forecast to Be $5

question 78

Multiple Choice

If next year's dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be:

• A)$31.25
• B)$40.00
• C)$41.67
• D)$43.33 P_o =

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Definitions:

Average Fixed Cost

The fixed expenses of a business spread out over the total number of units produced, decreasing as production increases.

Total Revenues

The total income generated by a firm from its sales activity, calculated by multiplying the selling price by the quantity sold.

Nonprice Competition

Strategies employed by companies to differentiate their products or services from those of competitors, other than through lowering prices, such as marketing and product quality improvements.

Perfectly Elastic

Describes a market scenario in which the quantity demanded or supplied changes infinitely in response to any change in price.