If a Stock's Dividend Is Expected to Grow at a Constant

question 474

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of 6 percent in the future and it has just paid a dividend of $2.50 a share,and you have an alternative investment of equal risk that will earn a 8 percent rate of return,what would you be willing to pay per share for this stock?

• A)$2.86
• B)$33.13
• C)$132.50
• D)$200.00

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Definitions:

Reversing Adjustments

Reversing Adjustments are accounting entries made at the beginning of a new accounting period to cancel out adjusting entries made at the end of the previous period to simplify financial reporting.

Record Depreciation Expense

The process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Allocate Prepaid Insurance

involves distributing the cost of insurance premiums over the period that the insurance coverage relates to, recognizing it as an expense over time rather than all at once.

Accrue Salaries Payable

Accrue Salaries Payable involves recording the salaries earned by employees that have not yet been paid, recognizing the liability before the cash is disbursed.