You observe Golden Flashes 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.
Correct Answer:
Verified
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