A firm plans to pay dividends of $12.50 at time 0 and $14 at time 1. Ignoring transaction costs and assuming that the investor can earn 8% on investments, which statement is true? 

A) An investor can spend up to $25.46 from dividends at time 0, and without decreasing the present value of all dividends received. 

B) An investor can spend up to $27.50 from dividends at time 0, and without decreasing the present value of all dividends received. 

C) An investor can spend up to $25.46 from dividends at time 0, but will decrease the present value of all dividends received. 

D) An investor can spend up to $27.50 from dividends at time 0, but will decrease the present value of all dividends received.

Answer rating: 100% (QA)

Solution Option C The present value of all dividend received is calculated as fol... View the full answer