Southern Foods Just Paid an Annual Dividend of $1

question 65

Multiple Choice

Southern Foods just paid an annual dividend of $1.10 a share. Management estimates the dividend will increase by 9 percent a year for the next four years. After that, the annual dividend growth rate is estimated at 3.5 percent. The required rate of return is 14 percent. What is the value of this stock today?

• A) $12.55
• B) $13.00
• C) $15.78
• D) $16.81
• E) $17.54

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Definitions:

Waive Rights

The act of voluntarily relinquishing or giving up a known right or privilege.

Past Practice

is an established custom or way of doing things that, over time, has been accepted and expected by both employers and employees within an organization.

Arbitrators

Neutral third parties who resolve disputes between individuals or organizations, making decisions that can be binding or non-binding.

Intent of the Parties

The actual aim or purpose that parties to an agreement had at the time they entered into it, usually determined from the language of the contract and circumstances.