Bensen CoPaid a Dividend of $5

question 72

Multiple Choice

Bensen Co.paid a dividend of $5.25 on its common stock yesterday.The company's dividends are expected to grow at a constant rate of 8.5% indefinitely.The required rate of return on this stock is 15.5%.You observe a market price of $78.50 for the stock.Should you purchase this stock?

• A) No, the market price is above the intrinsic value of the stock.
• B) Yes, the market price is below the intrinsic value of the stock.
• C) No, the growth rate in dividends is too far below the required return.
• D) Yes, but only if you can keep the stock for at least 5 years.

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