A Share of Common Stock Has an Expected Long-Run Constant

question 8

Multiple Choice

A share of common stock has an expected long-run constant growth rate of 10 percent and is currently priced at $66 per share.If investors require 15% rate of return,what was the last dividend paid on the stock?

• A) $2.20
• B) $1.95
• C) $6.15
• D) $3.00
• E) $3.30

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Definitions:

Payback Method

A capital budgeting technique that calculates the time needed to recoup the investment cost through net cash flows.

Cost of Capital

The minimum profit rate a company needs to achieve on its investment ventures to keep its market value stable and draw in capital.

Cash Inflows

Money received by a business from various sources including sales, investments, and financing.

Useful Life

The estimated period over which an asset is expected to be used by the entity, or be productive.