Suppose Acme Inc. plans to pay a dividend of $3.25 in one year (year 1) and $5.00 in two years (year 2). Following this, the company will not pay any dividends for 8 years. At the end of year 10 (this is year 10), the company will start paying a fixed annual dividend of $2.25 per share every year for eternity. If Acme Inc.'s equity cost of capital is 15.00%, what is its current price?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose Acme Inc. plans to pay a dividend of $3.25 in one year (year 1) and $5.00 in two
years (year 2). Following this, the company will not pay any dividends for 8 years. At the end
of year 10 (this is year 10), the company will start paying a fixed annual dividend of $2.25 per
share every year for eternity. If Acme Inc.'s equity cost of capital is 15.00%, what is its current
price?
O $10.31
O $12.08
O $10.87
O $21.61
Transcribed Image Text:Suppose Acme Inc. plans to pay a dividend of $3.25 in one year (year 1) and $5.00 in two years (year 2). Following this, the company will not pay any dividends for 8 years. At the end of year 10 (this is year 10), the company will start paying a fixed annual dividend of $2.25 per share every year for eternity. If Acme Inc.'s equity cost of capital is 15.00%, what is its current price? O $10.31 O $12.08 O $10.87 O $21.61
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