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Question
You observe Thundering Herd Common Stock selling for $40.00 per share. The next dividend is expected to be $4.00, and is expected to grow at a 5% annual rate forever. If your required rate of return is 12%, should you purchase the stock?A) yes, because the present value of the expected future cash flows is greater than $40
B) no, because the present value of the expected future cash flows is less than $40
C) yes, because the present value of the expected future cash flows is less than $40
D) no, because the present value of the expected future cash flows is greater than $40
Answer
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