Church Inc

question 75

Multiple Choice

Church Inc.is presently enjoying relatively high growth because of a surge in the demand for its new product.Management expects earnings and dividends to grow at a rate of 25% for the next 4 years,after which competition will probably reduce the growth rate in earnings and dividends to zero,i.e.,g = 0.The company's last dividend,D₀,was $1.25,its beta is 1.20,the market risk premium is 5.50%,and the risk-free rate is 3.00%.What is the current price of the common stock?

• A)$26.77
• B)$27.89
• C)$29.05
• D)$30.21
• E)$31.42

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Definitions:

Total Variable Cost

Total Variable Cost is the sum of all costs that vary with the level of production or output, including materials, labor, and other expenses that change in proportion to activity.

Fixed Cost

Fixed cost refers to expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Marginal Cost

The additional expenditure required to produce one more unit of a product or service.

Output

The amount of goods or services produced by a firm, industry, or economy within a particular time period.