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

question 140

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

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue contributes towards covering fixed costs and generating profit.

Sales Revenue

The total amount of money generated by a company from its sales of goods or services before any expenses are subtracted.

Variable Cost

Costs that adapt in response to modifications in business activity volume.

Fixed Cost Per Unit

The total fixed costs of production divided by the number of units produced, indicating how cost allocation changes with production volume.