Exhibit 20-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 75

Multiple Choice

Exhibit 20-5
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
The National Motor Company's last dividend was $1.25 and the directors expect to maintain the historic 4% annual rate of growth. You plan to purchase the stock today because you feel that the growth rate will increase to 7% for the next three years and the stock will then reach $25.00 per share.
-Refer to Exhibit 20-5. How much should you be willing to pay for the stock if you feel that the 7% growth rate can be maintained indefinitely and you require a 16% return?

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

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Definitions:

Illegal Contract

An agreement that is void and unenforceable by law due to its nature of involving activities that are against the law.

Voidable

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Illegal

Actions or activities that are expressly prohibited by law and subject to penal consequences.

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