Given That Dividends on a Share Are Expected to Remain

question 40

Multiple Choice

Given that dividends on a share are expected to remain indefinitely at $1 p.a.and that the required rate of return for the level of risk on such a share is 15%,the correct price for this share:

• A)cannot be ascertained from this information.
• B)cannot be ascertained without regard to the management structure of the firm.
• C)is $1.
• D)is $6.67.

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Definitions:

Balance Sheet Approach

A method in financial analysis that focuses on the balance sheet and its components: assets, liabilities, and equity.

Allowance for Doubtful Accounts

An accounting concept representing the estimated amount of receivables that may not be collected, thereby reducing accounts receivable to a more realistic value.

Adjustment

An accounting entry made into the books before the preparation of financial statements to allocate income and expenditure to the correct period.

Balance Sheet Approach

A method of accounting that focuses on reporting asset, liability, and equity balances.