Name: 1. If dividends on a common stock are expected to grow at a constant rate

Question

Name: 1. If dividends on a common stock are expected to grow at a constant rate forever, and if you are told the most recent dividend paid, the dividend growth rate, and the appropriate discount rate today,you can calculate I. the price of the stock today the dividend that is expected to be paid ten years from now the appropriate discount rate ten years from now a. I only b. I and only c. Iand only d, and only e. LIL and Which of the following statements about dividends is true? a. Dividends received are always added to taxable income of investors. b. Dividends are the only source of return that investors eam on common stock investments. c. The payment of dividends is at the discretion of the board of directors. d. The payment of dividends by the corporation is a tax-deductible business expense. e. A corporation can be sued for not paying undeclared common stock dividends The dividend on Simple Motors common stock will be $3 in 1 year, $4.25 in 2 years, and $6.00 in3 years. You can sell the stock for $100 in 3 years. If you require a 12% return on your investment, how much would you be willing to pay for a share of this stock today? a. $75.45 b. $77.24 c. $81.52 d. $85.66 e. $91.30 · 2. 3.

Explanation / Answer

1.Price Today = Next year Dividend/(Discount rate-Growth rate) . Yes

Dividend 10th year= Just paid Dividend*(1+growth rate)^10. Yes

Appropriate discount rate will change. No

Answer B I and II only

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