MBA Incwill Pay a Dividend for the First Time at the the End

question 113

Multiple Choice

MBA Inc.will pay a dividend for the first time at the end of 2016.It projects the following dividend per share:
2016 $1.50
2017 $2.00
2018 $2.50
Beginning with 2016 dividends will grow at 4% per year.The required rate of return is 12%.The intrinsic value of MBA shares is

• A)$25.37.
• B)$27.85.
• C)$28.96.
• D)$38.50.

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Definitions:

Period Of Time

A specific duration or length of time during which events occur or conditions exist.

Perpetual Payments

Payments that continue indefinitely, often seen in perpetuities where an initial investment pays a constant amount to the investor forever.

Discount Rate

The interest rate that the Federal Reserve charges banks for short-term loans, which influences monetary policy and the cost of borrowing.

Investment

Allocation of resources, usually financial, in expectation of generating an income or profit over time through appreciation, dividends, or interests.