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 less than $40.
b. No because the present value of the expected future cash flows is less than $40.
c. No because the present value of the expected future cash flows is greater than $40.
d. Yes because the present value of the expected future cash flows is greater than $40.