Since Its Inception Five Years Ago,Companioni Gyms Has Not Paid

question 86

Multiple Choice

Since its inception five years ago,Companioni Gyms has not paid a dividend to its common stockholders,and it does not expect to pay a dividend for the next five years.Beginning six years from today,however,Companioni Gyms expects to pay a $2 dividend,which,from that point on,will increase by 10 percent per year forever.Stocks with similar risks have a required rate of return equal to 15 percent.What should be the market price of Companioni's common stock?

• A) $19.89
• B) $22.87
• C) $17.29
• D) $44.00
• E) There is not enough information to answer this question.

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Definitions:

Dividend Income Distributions

The payment of earnings declared by a company to its shareholders, typically in the form of cash or additional shares.

Net Asset Value

The value per share of a mutual fund or an exchange-traded fund (ETF), calculated by dividing the total value of all the securities in the portfolio, minus any liabilities, by the number of shares outstanding.

Year-End Assets

The total value of all assets held by an individual or entity at the conclusion of a financial year.

Liabilities

Financial obligations or debts owed by a business or individual.