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

question 73

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 is the present value today of dividends for years 1 to 3?

• A) $4.67
• B) $3.08
• C) $5.67
• D) $4.5
• E) $1.53

---

Definitions:

Capital

Economic resources used in the production of goods and services, such as machinery, equipment, and buildings.

Consume Less

The action of reducing the amount of goods and services that individuals or societies use.

Residential Home Building

The process or business of creating new homes within residential areas, often involving construction firms, architects, and various contractors.

Volatile Sector

An industry or market segment known for high levels of price fluctuation, often due to changes in supply and demand, political instability, or other factors.