The Elder Co.is in downsizing mode.The company paid an annual dividend of $2.50 last year.The company has announced plans to lower the dividend by $.50 a year.Once the dividend amount becomes zero,the company will cease all dividends permanently.The required rate of return is 14.5 percent.What is one share of this stock worth?

Question

Quizplus · Accepted Answer

The correct answer is A because the stock is worth $3.85. The dividend is $2.50, and it will decrease by $0.50 each year. The required rate of return is 14.5%. So, the stock is worth $3.85.