PV of Dividends: Kleine Toymakers Is Introducing a New Line

question 56

Multiple Choice

PV of dividends: Kleine Toymakers is introducing a new line of robotic toys, which it expects to grow their earnings at a much faster rate than normal over the next three years. After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of the dividends to be paid out over the next six years if the required rate of rat of return is 15 percent?

• A) $13.24
• B) $12.00
• C) $6.57
• D) $10.24

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Definitions:

Inductive Argument

A form of reasoning in which the premises seek to supply strong evidence for the truth of the conclusion.

Correlated Objects

Items or variables that have a mutual relationship or connection, where changes in one are associated with changes in the other.

Causal Relationship

A connection between two events where one directly influences or causes the other.

Causal Arguments

Arguments that establish a cause-and-effect relationship between two or more things.