You Are Evaluating the Purchase of Charbridge, Inc

question 46

Multiple Choice

You are evaluating the purchase of Charbridge, Inc. common stock which currently pays no dividend and is not expected to do so for many years. Because of rapidly growing sales and profits, you believe the stock will be worth $51.50 in 3 years. If your required rate of return is 16%, what is the stock worth today?

• A) $59.74
• B) $51.25
• C) $32.99
• D) $0.00 because stocks that do not pay dividends have no value.

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Definitions:

Cash Receipts

The total amount of money, including cash, checks, and credit card payments, received by a business during a given period.

Credit Sales

Transactions where goods or services are provided to a customer with the agreement that payment will be made at a future date.

Selling and Administrative

Expenses associated with the company's efforts to sell its products and manage the overall organization, excluding production costs.

Variable Cost

A cost that changes in proportion to the level of output or activity in a company.