Valorous Corporation Will Pay a Dividend of $1

question 31

Multiple Choice

Valorous Corporation will pay a dividend of $1.75 per share at this year's end and a dividend of $2.35 per share at the end of next year. It is expected that the price of Valorous' stock will be $41 per share after two years. If Valorous has an equity cost of capital of 9%, what is the maximum price that a prudent investor would be willing to pay for a share of Valorous stock today?

• A) $32.38
• B) $36.19
• C) $38.09
• D) $39.99

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Definitions:

Administrative Expenses

Expenses that are not directly tied to the production of goods or services, such as salaries of office workers, rent, and utilities.

Tenant-Days

A measure used in the hospitality or rental industry, referring to the total number of days that units are occupied by tenants.

Activity Variance

The difference between the budgeted cost and actual cost attributed to changes in the level of activity.

Net Operating Income

Income generated from a company's everyday business operations, excluding deductions for interest and taxes.