USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 135

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds falls to 8 percent. Because investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 9.2. To what price will the market rise if the earnings expectation is $32.00?

• A) $384.00
• B) $266.56
• C) $213.44
• D) $200.00
• E) $125.44

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Definitions:

LIFO Layers

In accounting, layers created under the Last-In, First-Out inventory valuation method, each representing a specific cost associated with inventory purchased at different times.

Inventory Holding Gains

Inventory holding gains are the increases in value of inventory the company holds due to price increases, not yet realized through sales.

Liquidation

The process of bringing a business to an end and distributing its assets to claimants, usually when the company is unable to meet its financial obligations.

LIFO

Last In, First Out, an inventory accounting method where the last items added to inventory are the first ones to be used or sold, affecting cost of goods sold and inventory valuation.