A firm's stock can represent a good investment when __________.

A. cash flow is positive

B. expectations embedded in the current stock price are overly pessimistic

C. sales growth is positive

D. profits are positive

You expect firm XYZ to pay a dividend next year of $0.50, in year 2 of $0.60, and in year 3 of $0.75. If you expect the stock to sell for $35 in three years and the required rate is 8%, what is your estimate of the current price per share?

A. $37.50

B. $27.80

C. $29.36

D. $20.30

Consider Elixir Drug Company, which is enjoying rapid growth from the introduction of its new medicine for back pain. What is your estimate of the current price per share using a two-stage DDM if you assume the growth rate in dividends will be 15% for the next five years then fall to 5% forever, the required return on equity (Re) is 10% and the current dividend is $1.00 per share?

A. $53.91

B. $20.78

C. $23.00

D. $31.95