every year for the next 49 years, at which point your friend intends to shut down the business. The firm's stock is rrently selling for $65 per share. If you believe that the company really will pay dividends as stated and if you require a rate of return of 13% to make this vestment, should you buy the stock? O A. Yes, according to the fundamental value equation, the price will be less than S65. B. No, according to the fundamental value equation, the price will be less than S65. O C. No, according to the fundamental value equation, the price will be equal to $65. D. Yes, according to the fundamental value equation, the price will be more than $65.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question

V1

Suppose that a friend has started a business selling software. The software is a great hit, and the firm quickly grows large enough to be able to sell stock. Your friend's
firm promises to pay a dividend of $7 per share every year for the next 49 years, at which point your friend intends to shut down the business. The firm's stock is
currently selling for $65 per share. If you believe that the company really will pay dividends as stated and if you require a rate of return of 13% to make this
investment, should you buy the stock?
O A. Yes, according to the fundamental value equation, the price will be less than $65.
O B. No, according to the fundamental value equation, the price will be less than S65.
O C. No, according to the fundamental value equation, the price will be equal to $65.
O D. Yes, according to the fundamental value equation, the price will be more than $65.
pts
of 1
of 1.
Transcribed Image Text:Suppose that a friend has started a business selling software. The software is a great hit, and the firm quickly grows large enough to be able to sell stock. Your friend's firm promises to pay a dividend of $7 per share every year for the next 49 years, at which point your friend intends to shut down the business. The firm's stock is currently selling for $65 per share. If you believe that the company really will pay dividends as stated and if you require a rate of return of 13% to make this investment, should you buy the stock? O A. Yes, according to the fundamental value equation, the price will be less than $65. O B. No, according to the fundamental value equation, the price will be less than S65. O C. No, according to the fundamental value equation, the price will be equal to $65. O D. Yes, according to the fundamental value equation, the price will be more than $65. pts of 1 of 1.
Next question
Suppose that the price of Goldman Sachs stock is curently $145 per share, You expect that the firm will pay a dividend of $2.26 per share at the end of the year, at
which time you expect that the stock will be selling for $174 per share.
If you require a return of 20% to invest in this stock, you
buy the stock.
pt
of
Transcribed Image Text:Next question Suppose that the price of Goldman Sachs stock is curently $145 per share, You expect that the firm will pay a dividend of $2.26 per share at the end of the year, at which time you expect that the stock will be selling for $174 per share. If you require a return of 20% to invest in this stock, you buy the stock. pt of
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