USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 25

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The National Motor Company's last dividend was $1.25, and the directors expect to maintain the historic 4 percent annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 7 percent for the next three years and the stock will then reach $25.00 per share.
-Refer to Exhibit 8.2. How much should you be willing to pay for the stock if you feel that the 7 percent growth rate can be maintained indefinitely and you require a 16 percent return?

• A) $11.15
• B) $14.44
• C) $14.86
• D) $18.90
• E) $19.24

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Definitions:

Product Life Cycle

The stages through which a product goes from its inception to decline, including introduction, growth, maturity, and decline.

Introductory Stage

The initial phase of a product or service lifecycle, characterized by low sales, high investment costs, and limited market acceptance.

Growth Stage

The growth stage is the phase in a company's life cycle characterized by rapid market acceptance and increasing profits.

Decline Stage

A phase in the product lifecycle or business where sales begin to fall due to market saturation, technological obsolescence, or changing consumer preferences.