ART Has Come Out with a New and Improved Product

question 50

Multiple Choice

ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock.
What price do you expect ART shares to sell for in 4 years?

• A) $53.96
• B) $44.95
• C) $41.68
• D) $39.76

---

Definitions:

Expected Frequency

The predicted number of times an event or outcome occurs within a specific interval, based on a probability model.

Uniformly Distributed

A type of distribution in which all outcomes are equally likely; the probability density function is constant.

Tax Proposal

A plan or suggestion, typically made by a governing body, to impose or alter taxes.

Multinomial Probability

The probability of achieving a given set of outcomes in a multinomial experiment, where each outcome is based on discrete, mutually exclusive categories.