Suppose a Stock Is Not Currently Paying Dividends, and Its

question 7

Multiple Choice

Suppose a stock is not currently paying dividends, and its management has announced that it will not pay a dividend for at least 5 years, but that it does expect to start paying dividends sometime in the future.Under these conditions, which of the following statements is correct?

• A) Since it is expected to someday pay dividends, the value of the stock today can be found with this equation: P₀ = /(r − g).
• B) The value of the stock cannot be found, even theoretically, by finding the present value of expected future dividends.
• C) According to the text, such a stock should have a value of zero.Any actual value could only come from bids by people who want to control the company in order to draw salaries.
• D) The value of the stock could be found by DCF procedures, but we would have to insert zeros for until such time as we expect the company to begin paying dividends.

---

Definitions:

Estrogen

A group of sex hormones that play an essential role in the reproductive system of females and the development of female secondary sexual characteristics.

Radiation

The emission or transmission of energy in the form of waves or particles through space or through a material medium.

Chemotherapy

A type of cancer treatment that uses one or more anti-cancer drugs as part of a standardized chemotherapy regimen to kill or slow the growth of cancer cells.

Atherosclerosis

A condition characterized by the hardening and narrowing of the arteries due to the buildup of plaque, leading to potential cardiovascular problems.