Natalie Is Interested in Valuing the Shares of Union Aerospace

question 111

Multiple Choice

Natalie is interested in valuing the shares of Union Aerospace (UA) .UA pays dividends annually.She expects the stock to pay dividends of $3 at the end of each of the next four years.Thereafter,she expects the dividend to grow at 7% per annum in perpetuity.If her required return is 12%,then how much should she pay for a share?

• A) $43.63
• B) $45.54
• C) $47.24
• D) $49.91
• E) $73.31

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Definitions:

Fixed Expenses

Costs that do not change in total regardless of changes in the level of business activity.

Financial Advantage

The benefit or edge obtained by a business or individual that puts them in a better financial position than others.

Variable Costs

Costs that shift in direct correlation with production or sales figures, notably direct labor and raw materials.

Allocated General Overhead

involves distributing indirect costs across different departments or products to reflect their share of resources used.