A Firm Has Been Losing Sales Due to Technological Obsolescence

question 26

Multiple Choice

A firm has been losing sales due to technological obsolescence. It projects growth for the future to be −3 percent. Its recent dividend was $2.50. What is the value of this stock when the required return is 7 percent?

• A) $28.17
• B) $24.25
• C) $17.42
• D) $15.53

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Definitions:

Equal Payments

Regularly scheduled payments of the same amount, often used in the repayment of loans.

Installment Note

A debt instrument that requires periodic payments of principal and interest over the term of the loan.

Present Value

The value today of a future sum of money or sequence of cash payments, adjusted for a specific rate of return.

Annuity

An annuity is a financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.