The WTC Corporation Will Pay a Constant Dividend of $4

question 70

Multiple Choice

The WTC Corporation will pay a constant dividend of $4.20 per share, per year, in perpetuity. If all investors pay a 20% tax on dividends, there is no capital gains tax, and the cost of capital for investing in WTC stock is 14%, what is the price for a share of WTC stock?

• A) $24.00
• B) $19.20
• C) $28.80
• D) $48.00

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Definitions:

Drawings

Withdrawal of cash or other assets from an unincorporated business for the personal use of the owner(s).

Authorized Shares

The maximum number of shares that a corporation is legally allowed to issue, as specified in its articles of incorporation.

Market Value

The existing cost for buying or selling an asset or service on the market.

Not-For-Profit

Organizations that operate for purposes other than generating profit, often focusing on social, educational, or charitable endeavors.