Question 1

GEO Inc. has paid annual dividends of $.41, $.47, and $.53 a share over the past three years, respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share?

Accepted Answer

A)   $2.85
B)   $3.68
C)   $2.43
D)   $3.09
E)   $3.18F) All of the above
G) A) and B)

Question 2

How much are you willing to pay for one share of LBM stock if the company just paid an annual dividend of $2.24, the dividends increase by 2.3 percent annually, and you require a return of 14.8 percent?

Accepted Answer

A)   $19.29
B)   $19.33
C)   $18.33
D)   $18.21
E)   $17.59F) A) and B)
G) A) and C)

Question 3

Farmco just paid its annual dividend of $.32 per share. The dividends are expected to grow at 25 percent annually for the next 4 years and then level off to an annual growth rate of 3 percent indefinitely. What is the price of this stock today given a required return of 15 percent?

Accepted Answer

A)   $7.54
B)   $7.32
C)   $6.03
D)   $5.42
E)   $9.01F) D) and E)
G) C) and D)

Question 4

K's Fashions is growing quickly. Dividends are expected to increase by 8 percent annually for the next three years, with the growth rate falling off to a constant 3 percent thereafter. The required return is 14 percent and the company just paid its annual dividend of $3.64 per share. What is the current share price?

Accepted Answer

A)   $48.96
B)   $51.11
C)   $38.79
D)   $41.87
E)   $55.70F) A) and B)
G) A) and E)

Question 5

Global Tek plans on increasing its annual dividend by 15 percent a year for the next four years and then decreasing the growth rate to 2.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. What is the current value of one share of this stock if the required rate of return is 17.4 percent?

Accepted Answer

A)   $1.82
B)   $2.18
C)   $2.03
D)   $2.71
E)   $3.05F) A) and C)
G) B) and D)

Question 6

Morris Companies preferred stock pays a constant $5.75 dividend every year. What is the required return if the stock price is $54.09 per share?

Accepted Answer

A)   10.63 percent
B)   11.02 percent
C)   11.08 percent
D)   11.84 percent
E)   10.95 percentF) D) and E)
G) All of the above

Question 7

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

Accepted Answer

A)   broker.
B)   floor trader.
C)   capitalist.
D)   principal.
E)   dealer.F) A) and C)
G) All of the above

Question 8

Preferred stock may have all of the following characteristics in common with bonds with the exception of:

Accepted Answer

A)   the lack of voting rights.
B)   a possible conversion option into common stock.
C)   annuity payments.
D)   a fixed liquidation value.
E)   tax-deductible payments.F) All of the above
G) B) and D)

Question 9

KNJ Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 a share over the next three years, respectively. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent?

Accepted Answer

A)   $11.22
B)   $12.21
C)   $12.32
D)   $11.47
E)   $12.03F) A) and B)
G) A) and C)

Question 10

New Products pays no dividend at the present time. Starting in Year 3, the firm will pay a dividend of $.25 per share for two years. After that, the company plans on paying a constant $.75 a share annual dividend indefinitely. How much should you pay per share to purchase this stock today at a required return of 13.8 percent?

Accepted Answer

A)   $3.78
B)   $3.56
C)   $4.37
D)   $4.61
E)   $4.98F) All of the above
G) A) and E)

Question 11

The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now?

Accepted Answer

A)   $2.10
B)   $2.05
C)   $2.08
D)   $2.02
E)   $2.15F) C) and D)
G) None of the above

Question 12

DT Motors paid its first annual dividend yesterday in the amount of $.15 a share. The company plans to double the dividend in each of the next 3 years. Starting in Year 4, the firm plans to pay $1.50 a share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 13.8 percent?

Accepted Answer

A)   $11.02
B)   $10.77
C)   $8.92
D)   $10.26
E)   $11.79F) C) and D)
G) A) and B)

Question 13

Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today?

Accepted Answer

A)   $11.23
B)   $10.82
C)   $10.68
D)   $9.68
E)   $11.57F) A) and B)
G) A) and D)

Question 14

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?

Accepted Answer

A)   10.86 percent
B)   15.82 percent
C)   9.08 percent
D)   13.39 percent
E)   12.75 percentF) None of the above
G) A) and B)

Question 15

Home Products common stock sells for $36.84 a share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate?

Accepted Answer

A)   11.43 percent
B)   11.06 percent
C)   10.87 percent
D)   11.18 percent
E)   10.95 percentF) D) and E)
G) None of the above

Question 16

Southern Markets recently paid an annual dividend of $2.62 on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $28.12 a share. What is the market rate of return?

Accepted Answer

A)   13.88 percent
B)   14.07 percent
C)   14.21 percent
D)   14.37 percent
E)   13.47 percentF) A) and C)
G) All of the above

Question 17

Gee-Gee common stock returned a nifty 21.6 percent rate of return last year. The dividend amount was $.25 a share which equated to a dividend yield of 1.01 percent. What was the rate of price appreciation for the year?

Accepted Answer

A)   20.59 percent
B)   21.38 percent
C)   23.60 percent
D)   22.87 percent
E)   21.52 percentF) C) and D)
G) A) and E)

Question 18

The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?

Accepted Answer

A)   17 percent
B)   20 percent plus one vote
C)   25 percent plus one vote
D)   50 percent plus one vote
E)   51 percentF) A) and D)
G) A) and B)

Question 19

When using the two-stage dividend growth model:

Accepted Answer

A)   g₁ cannot be negative.
B)   Pt = Dt/R.
C)   g₁ must be greater than g₂.
D)   g₁ can be greater than R.
E)   R must be less than g₁ but greater than g₂.F) A) and D)
G) C) and E)

Question 20

Which one of the following statements is correct?

Accepted Answer

A)   Stocks can only be assigned one dividend growth rate.
B)   Preferred stocks generally have variable growth rates.
C)   Dividend growth rates must be either zero or positive.
D)   All stocks can be valued using the dividend discount models.
E)   Stocks can have negative growth rates.F) B) and E)
G) A) and D)

Exam 8: Stock Valuation

Correct Answer
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Correct Answer
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Preferred stock may have all of the following characteristics in common with bonds with the exception of:

Correct Answer
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An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

Correct Answer
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Correct Answer
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The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now?

Correct Answer
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When using the two-stage dividend growth model:

Correct Answer
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Gee-Gee common stock returned a nifty 21.6 percent rate of return last year. The dividend amount was $.25 a share which equated to a dividend yield of 1.01 percent. What was the rate of price appreciation for the year?

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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How much are you willing to pay for one share of LBM stock if the company just paid an annual dividend of $2.24, the dividends increase by 2.3 percent annually, and you require a return of 14.8 percent?

Correct Answer
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The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?

Correct Answer
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Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today?

Correct Answer
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Southern Markets recently paid an annual dividend of $2.62 on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $28.12 a share. What is the market rate of return?

Correct Answer
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Farmco just paid its annual dividend of $.32 per share. The dividends are expected to grow at 25 percent annually for the next 4 years and then level off to an annual growth rate of 3 percent indefinitely. What is the price of this stock today given a required return of 15 percent?

Correct Answer
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Home Products common stock sells for $36.84 a share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate?

Correct Answer
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KNJ Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 a share over the next three years, respectively. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent?

Correct Answer
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GEO Inc. has paid annual dividends of $.41, $.47, and $.53 a share over the past three years, respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share?

Correct Answer
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Correct Answer
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Morris Companies preferred stock pays a constant $5.75 dividend every year. What is the required return if the stock price is $54.09 per share?

Correct Answer
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Correct Answer
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Exam 8: Stock Valuation

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Preferred stock may have all of the following characteristics in common with bonds with the exception of:

Correct AnswerverifiedShow Answer

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now?

Correct AnswerverifiedShow Answer

When using the two-stage dividend growth model:

Correct AnswerverifiedShow Answer

Gee-Gee common stock returned a nifty 21.6 percent rate of return last year. The dividend amount was $.25 a share which equated to a dividend yield of 1.01 percent. What was the rate of price appreciation for the year?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

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How much are you willing to pay for one share of LBM stock if the company just paid an annual dividend of $2.24, the dividends increase by 2.3 percent annually, and you require a return of 14.8 percent?

Correct AnswerverifiedShow Answer

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?

Correct AnswerverifiedShow Answer

Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today?

Correct AnswerverifiedShow Answer

Southern Markets recently paid an annual dividend of $2.62 on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $28.12 a share. What is the market rate of return?

Correct AnswerverifiedShow Answer

Farmco just paid its annual dividend of $.32 per share. The dividends are expected to grow at 25 percent annually for the next 4 years and then level off to an annual growth rate of 3 percent indefinitely. What is the price of this stock today given a required return of 15 percent?

Correct AnswerverifiedShow Answer

Home Products common stock sells for $36.84 a share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate?

Correct AnswerverifiedShow Answer

KNJ Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 a share over the next three years, respectively. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent?

Correct AnswerverifiedShow Answer

GEO Inc. has paid annual dividends of $.41, $.47, and $.53 a share over the past three years, respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Morris Companies preferred stock pays a constant $5.75 dividend every year. What is the required return if the stock price is $54.09 per share?

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Correct AnswerverifiedShow Answer

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