Rentz RVs Inc

question 4

Multiple Choice

Rentz RVs Inc.(RRV) is currently enjoying relatively high growth because of a surge in the demand for recreational vehicles.Management expects earnings and dividends to grow at a rate of 25% for the next 4 years,after which high gas prices will probably reduce the growth rate in earnings and dividends to zero,i.e.,g = 0.The company's last dividend,D₀,was $1.25.RRV's beta is 1.20,the market risk premium is 5.50%,and the risk-free rate is 3.00%.What is the current price of the common stock?

• A)$26.77
• B)$27.89
• C)$29.05
• D)$30.21

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Definitions:

Constant Costs

Costs that remain unchanged regardless of the level of output or activity within a certain range.

Corncob Pipes

Pipes made from the dried cob of a corn plant, often used for smoking tobacco.

Cournot Reaction Function

A mathematical representation in economics that shows how one firm reacts to the quantity choice of another firm in a duopoly market setting.

Inverse Demand Function

Represents the relationship between the price of a good and the quantity demanded, showing how price must adjust to maintain equilibrium between supply and demand.