The Hart Mountain Company Has Recently Discovered a New Type

question 61

Multiple Choice

The Hart Mountain Company has recently discovered a new type of kitty litter which is extremely absorbent.It is expected that the firm will experience (beginning now) an unusually high growth rate (20 percent) during the period (3 years) it has exclusive rights to the property where the raw material used to make this kitty litter is found.However,beginning with the fourth year the firm's competition will have access to the material,and from that time on the firm will achieve a normal growth rate of 8 percent annually.During the rapid growth period,the firm's dividend payout ratio (percent of EPS paid as dividends) will be relatively low (20 percent) in order to conserve funds for reinvestment.However,the decrease in growth in the fourth year will be accompanied by an increase in dividend payout to 50 percent.Last year's earnings were E₀ = $2.00 per share,and the firm's required return is 10 percent.What should be the current price of the common stock?

• A) $66.50
• B) $87.96
• C) $71.53
• D) $61.78
• E) $93.50

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Definitions:

Crop Price

The amount of money that farmers receive for the agricultural products they produce, which can vary based on supply and demand.

Loan Price

The total cost associated with borrowing money, which includes the interest rate and any other fees or charges.

Agricultural Subsidies

Financial assistance programs provided by the government to support farmers, intended to stabilize food prices and ensure a reliable food supply.

Agricultural Act

Legislation enacted by a government to regulate agricultural practices, supports, and policies aimed at stabilizing or enhancing the agricultural sector.