XYZ Company Has Expected Earnings of $3

question 33

Multiple Choice

XYZ Company has expected earnings of $3.00 for next year and usually retains 40 percent for future growth. Its dividends are expected to grow at a rate of 10 percent indefinitely. If an investor has a required rate of return of 15 percent, what price would he be willing to pay for XYZ stock?

• A) $12.50
• B) $25.00
• C) $30.00
• D) $36.00

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Definitions:

Mens Rea

A legal principle that refers to the mental state a person must be in while committing a crime for it to be intentional.

Prison Sentence

The period of time a person is legally required to spend in prison as punishment for committing a crime.

Public Defender

A lawyer appointed by the court to represent defendants who cannot afford to hire a private attorney in criminal cases.

Deemed Reasonable

Considered or judged to be fair, appropriate, or within acceptable limits according to prevailing standards or circumstances.