Using the Stock Valuation Formula Calculate the Value of a Share

question 94

Multiple Choice

Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $5 in dividends,in addition the dividends are expected to grow at a rate of 4 percent forever,and the investor's required rate of return is 12 percent.

• A)$18.75
• B)$39.75
• C)$62.50
• D)$68.50

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Definitions:

Marginal Revenue

The additional revenue that a company generates from selling one more unit of a good or service.

Moustache Wax

A grooming product used to style and hold the moustache in place.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service.

Natural Monopoly

A market condition where a single firm can provide a product or service at a lower cost than any potential competitor, often due to economies of scale.