Since Its Inception Five Years Ago,Companioni Gyms Has Not Paid

question 86

Multiple Choice

Since its inception five years ago,Companioni Gyms has not paid a dividend to its common stockholders,and it does not expect to pay a dividend for the next five years.Beginning six years from today,however,Companioni Gyms expects to pay a $2 dividend,which,from that point on,will increase by 10 percent per year forever.Stocks with similar risks have a required rate of return equal to 15 percent.What should be the market price of Companioni's common stock?

• A) $19.89
• B) $22.87
• C) $17.29
• D) $44.00
• E) There is not enough information to answer this question.

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Definitions:

Count of Cash

The process of physically verifying the amount of cash on hand at a particular time.

Days' Sales Uncollected

A financial metric that estimates the average number of days a company takes to collect revenue after a sale has been made.

Liquidity of Receivables

The ease with which accounts receivable can be converted into cash, reflecting the company's efficiency in managing credit sales.

Accounts Receivable

Financial obligations that clients have towards a company for goods or services delivered but still awaiting payment.