ABC Common Stock Is Expected to Have Extraordinary Growth of 20

question 20

Multiple Choice

ABC common stock is expected to have extraordinary growth of 20% per year for 2 years,at which time the growth rate will settle into a constant 6%.If the discount rate is 15% and the most recent dividend was $2.50,what should be the approximate current share price?

• A) $31.16
• B) $33.23
• C) $37.42
• D) $47.77

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Definitions:

Marginal Tax Bracket

The tax rate that applies to the last dollar of the taxpayer's income, indicating the rate at which additional income will be taxed.

After-tax Return

The profit from an investment after all taxes have been subtracted, indicating the net gain to the investor.

Time Horizons

The length of time over which an investment is expected to be held before it is liquidated, ranging from short-term to long-term periods.

Casualty Insurance

Insurance coverage for loss or liability stemming from a sudden, accidental event.