If You Own 10% of the Shares of a Corporation's

question 28

Multiple Choice

If you own 10% of the shares of a corporation's stock,and the corporation is expected to earn $9 million a year in after-tax profits forever,and the interest rate is 0.05,what is the value of your shares?

• A)$18 million
• B)$900,000
• C)$9 million
• D)$6 million
• E)$180 million

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Definitions:

Preferred Stock

A type of stock that gives its holders preference over common stockholders in terms of dividend payments and assets during liquidation.

Capital Structure

The mix of debt and equity financing a company uses to fund its operations and growth.

Noncontrolling Interest

An ownership interest in a subsidiary not attributable, directly or indirectly, to the parent company, reflecting the equity in a subsidiary not owned by the parent.

Subsidiary

A company that is controlled by another company, known as a parent company, through the ownership of more than half of its voting stock.