Exhibit 20-7 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 59

Multiple Choice

Exhibit 20-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider a firm that has just paid a dividend of $1.5. An analyst expects dividends to grow at a rate of 9% per year for the next three years. After that dividends are expected to grow at a normal rate of 5% per year. Assume that the appropriate discount rate is 7%.
-Refer to Exhibit 20-7. What are the dividends for years 1, 2, and 3?

• A) $1.5, $2.0, $2.05
• B) $1.64, $1.78, $1.94
• C) $1.64, $1.94, $2.24
• D) $1.5, $2.40, $3.30
• E) $2.07, $2.14, $2.21

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Definitions:

Lenient Credit Terms

Lenient credit terms are more favorable conditions provided by a lender, allowing for longer repayment periods or lower interest rates to facilitate easier repayment for the borrower.

Uncollectible Accounts

Accounts receivable that are considered unlikely to be collected and thus written off as a bad debt expense.

Idle Cash

Idle cash refers to funds that are not currently invested, earning interest, or being used in operations, often representing missed opportunities.

Treasury Bills

Short-term government securities with maturities ranging from a few days to 52 weeks, often considered risk-free investments.