A Firm Does Not Pay a Dividend

question 35

Multiple Choice

A firm does not pay a dividend. It is expected to pay its first dividend of $0.15 per share in three years. This dividend will grow at 9 percent indefinitely. Using a 10 percent discount rate, compute the value of this stock.

• A) $12.28
• B) $12.40
• C) $16.35
• D) $16.50

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Definitions:

Operating Activity

Activities that constitute the primary or main activities of an entity, including cash flows related to sales, expenses, and other core business operations.

Cash Dividend

A direct payment of profits from a corporation to its shareholders, often distributed quarterly.

Equity-Method

An accounting technique used by firms to assess the profits earned by their investments in other companies, by recording such profits as income.

Deferred Taxes Payable

Liabilities for taxes owed that are recorded on the balance sheet to reflect timing differences between tax laws and accounting practices.