If Adam Invested $25,000 in a Stock Paying Annual Dividends

question 84

Multiple Choice

If Adam invested $25,000 in a stock paying annual dividends equal to 5% of his investment, what would the value of his investment be 10 years from now assuming that he reinvested his after-tax dividends each year? Assume Adam's marginal ordinary tax rate is 15%.

• A) $26,940
• B) $40,722
• C) $37,905
• D) $101,139
• E) None of these

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Definitions:

Treasury Stock

Shares of a company's own stock that it has reacquired from shareholders and held in the company's treasury, reducing the amount of outstanding stock.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities, representing shareholders' ownership interest.

Stock Dividend

A dividend payment made in the form of additional shares rather than cash, increasing the number of shares owned by shareholders.

Retained Earnings

Retained earnings are the portion of a company's profits that are kept or retained rather than distributed to shareholders as dividends, often used for reinvestment in the business or to pay down debt.