Roxy Incorporated Expects Non-Normal Dividend Growth Over the Next Three

question 70

Multiple Choice

Roxy Incorporated expects non-normal dividend growth over the next three years; that is a 20% growth rate for three years followed by growth of 10% thereafter.If the last dividend paid was $3.00 and the appropriate discount rate is 16%; what is the price of the stock today?

• A) $ 73.24
• B) $ 95.04
• C) $ 70.10
• D) $ 60.89

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Definitions:

Standard Error

A measure of the variability or dispersion of a sampling distribution, often used as an estimate of the accuracy of a sample mean.

Plus Four Method

A statistical method that adds four to the sample size and regards two successes and two failures in a binomial proportion confidence interval.

P-value

The probability of obtaining a test statistic at least as extreme as the one observed, assuming the null hypothesis is true; used to determine statistical significance.

Hypothesis

A supposition or proposed explanation made on the basis of limited evidence as a starting point for further investigation.