The SPWhitman Company's Last Dividend Was $1

question 73

Multiple Choice

The S.P.Whitman Company's last dividend was $1.00.The dividend growth rate is expected to be constant at 10% for 3 years,after which dividends are expected to grow at a rate of 6% forever.The current stock price is $15.00.What is Whitman's required return,r_s? (Hint: Forecast the dividends for Years 1 to 4.Then you must find the discount rate that causes the PVs of the dividends at t = 1,t = 2,and t = 3 plus the price at t = 3,P₃,to equal the actual known price.However,you must first estimate P₃,and that requires an estimate of r_s.You can make a guess as to r_s,find P₃ using it,then discount the dividends and the estimated P₃ at that rate.If the sum does not equal the known price,then change the value used for r_s, and continue until you get P₀.This is a laborious,time-consuming process with a calculator,but it's easy with Excel.)

• A)12.63%
• B)13.02%
• C)13.42%
• D)13.84%

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Vestibulospinal Tract

A neural pathway that sends information from the inner ear balance apparatus to the muscles involved in maintaining posture and balance.

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Visual Association Area

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Recognize

The ability to identify or acknowledge something as previously known, seen, or experienced, often by perception or cognition.