What Should You Pay for a Stock If Next Year's

question 94

Multiple Choice

What should you pay for a stock if next year's annual dividend is forecast to be $5.25,the constant-growth rate is 2.85%,and you require a 15.5% rate of return?

• A) $31.25
• B) $38.87
• C) $41.50
• D) $42.68

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Definitions:

Cumulative Voting

A voting system in which shareholders can allocate their votes in any proportion among candidates for a company's board of directors.

Minority Participation

Minority Participation refers to the involvement or investment in a project or company by individuals or groups who do not hold a controlling stake.

Dividend Growth Model

A valuation method used to estimate the value of a stock by assuming constant dividends that grow at a steady rate.

Right of First Refusal

A contractual right that gives its holder the option to enter a business transaction with the owner of something, before the owner is entitled to enter into that transaction with a third party.