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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.
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