You Are Considering the Purchase of Common Stock That Just

question 108

Multiple Choice

You are considering the purchase of common stock that just paid a dividend of $6.50 per share.Security analysts agree with top management in projecting steady growth of 12% in dividends and earnings over the foreseeable future.Your required rate of return for stocks of this type is 18%.How much should you expect to pay for this stock?

• A)$86
• B)$94
• C)$108
• D)$121
• E)$242

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Definitions:

Notes Receivable

Financial assets representing money owed to a company by customers or others, usually evidenced by a written promissory note.

Accounts Receivable

Monies owed to a company by customers for products or services that have been delivered or used but not yet paid for.

Aging the Accounts

The process of categorizing and reviewing accounts receivable based on the length of time an invoice has been outstanding.

Adjusting Entry

A journal entry made in accounting records to update the balances of accounts at the end of an accounting period.