A Firm Has Been Losing Sales Due to Technological Obsolescence

question 26

Multiple Choice

A firm has been losing sales due to technological obsolescence. It projects growth for the future to be −3 percent. Its recent dividend was $2.50. What is the value of this stock when the required return is 7 percent?

• A) $28.17
• B) $24.25
• C) $17.42
• D) $15.53

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Definitions:

Long-run Equilibrium Price

The price at which the quantity of a good demanded equals the quantity supplied, with all adjustments made for factors affecting supply or demand over time.

Product Demand

The desire and willingness of consumers to purchase a particular product at various prices during a certain period.

Purely Competitive Firm

A business functioning in an environment with numerous purchasers and vendors, where no single entity has the power to notably affect the prices in the market.

Technological Improvement

Advances and innovations in technology that enhance efficiency, productivity, or capabilities in various sectors.