A Company Has a Current Share Price of $14

question 28

Multiple Choice

A company has a current share price of $14.50 and is expected to pay a $0.85 dividend in one year. If the company's equity cost of capital is 12%, what price would its shares be expected to sell for immediately after it pays the dividend?

• A)$13.65
• B)$15.29
• C)$15.39
• D)$12.18

---

Definitions:

Terms 2/10, N/30

A set of credit terms that offer a discount of 2% if payment is made within 10 days; otherwise, the full invoice amount is due within 30 days.

Perpetual Inventory Method

An accounting practice where the inventory records are updated immediately after every addition or subtraction, providing a continuously accurate inventory level.

Journalize

The act of recording business transactions in the chronological accounting record known as the journal.

Terms 2/10, N/30

A payment term indicating that a buyer can take a 2% discount on the invoice amount if the payment is made within 10 days; otherwise, the full invoice amount must be paid within 30 days.