XYZ Company Has Expected Earnings of $3

question 63

Multiple Choice

XYZ Company has expected earnings of $3.00 for next year and usually retains 40 percent for future growth.Its dividends are expected to grow at a rate of 10 percent indefinitely.If an investor has a required rate of return of 15 percent,what price would he be willing to pay for XYZ stock?

• A)$12.50
• B)$25.00
• C)$30.00
• D)$36.00

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Definitions:

Liberal Democrat

A member of a political party or ideology that combines liberal policies on social issues with democratic principles.

Federal Deficit

The annual shortfall where the government's expenditures exceed its revenues, contributing to the national debt.

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The presidential term of Ronald Reagan, the 40th President of the United States, from 1981 to 1989, known for its conservative policies and the end of the Cold War.