You Are Evaluating the Purchase of Cellars,Inc

question 2

Multiple Choice

You are evaluating the purchase of Cellars,Inc.common stock that just paid a dividend of $1.80.You expect the dividend to grow at a rate of 12% for the next three years.You plan to hold the stock for three years and then sell it.You estimate that a required rate of return of 17.5% will be adequate compensation for this investment.Calculate the present value of the expected dividends.Round to the nearest $0.10.

• A)$4.90
• B)$11.50
• C)$9.80
• D)$6.10

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Definitions:

Dollarization

The process of a country abandoning their currency and using U.S. Dollars or another currency instead.

Economic Inflation

A general increase in prices and fall in the purchasing value of money over time.

Buying Power

The ability of individuals or entities to purchase goods and services, often influenced by income levels, inflation, and market conditions.

Domestic Currency

The legal tender or currency that is circulated for use and accepted for exchange within the domestic economy of a country.