Latcher's is a relatively new firm that is still in a period of rapid development.The company plans on retaining all of its earnings for the next six years.Seven years from now,the company projects paying an annual dividend of $.25 a share and then increasing that amount by 3 percent annually thereafter.To value this stock as of today,you would most likely determine the value of the stock ________ years from today before determining today's value.
A)4
B)5
C)6
D)7
E)8

Question

Quizplus · Accepted Answer

The correct answer is C because the company plans on retaining all of its earnings for the next six years. So, the value of the stock seven years from today would be the present value of the dividends paid from year 7 to infinity.

Latcher's Is a Relatively New Firm That Is Still in a Period