Question 1

The voting procedure where shareholders grant authority to another individual to vote their shares is called:

Accepted Answer

A)   Democratic voting.
B)   Cumulative voting.
C)   Straight voting.
D)   Deferred voting.
E)   Proxy voting.F) A) and E)
G) B) and E)

Question 2

You have decided that you would like to own some shares of Martin & Miller (M&M)  but need an expected 15% rate of return to compensate for the perceived risk of such ownership. What is the
Maximum you are willing to spend today to buy one share of M&M stock if the company pays a
Constant $3 annual dividend per share?

Accepted Answer

A)   $15.00
B)   $16.25
C)   $17.50
D)   $18.75
E)   $20.00F) A) and E)
G) A) and D)

Question 3

Next year's annual dividend divided by the current stock price is called the:

Accepted Answer

A)   Yield to maturity.
B)   Total yield.
C)   Dividend yield.
D)   Capital gains yield.
E)   Earnings yield.F) A) and E)
G) A) and D)

Question 4

The owner of preferred stock:

Accepted Answer

A)   Is entitled to a distribution of income prior to the common shareholders.
B)   Has the right to veto the outcome of an election held by the common shareholders.
C)   Has the right to declare the company bankrupt whenever there are insuﬃcient funds to pay dividends to the common shareholders.
D)   Receives tax-free dividends if it is an individual and own more than 20% of the outstanding preferred shares.
E)   Has the right to collect payment on any unpaid dividends as long as the stock is noncumulative preferred.F) None of the above
G) C) and D)

Question 5

Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price of ABC stock needs
To _____ if Fred is to achieve his 10% rate of return.

Accepted Answer

A)   remain constant
B)   decrease by 5%
C)   increase by 5%
D)   increase by 10%
E)   increase by 15%F) A) and E)
G) D) and E)

Question 6

The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate)  is called the:

Accepted Answer

A)   Zero growth model.
B)   Dividend growth model.
C)   Capital Asset Pricing Model.
D)   Earnings capitalization model.
E)   Perpetual growth model.F) C) and D)
G) D) and E)

Question 7

KwakMotors Inc. pays quarterly dividends of $2.00 dividend and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9.5% on
Your investment?

Accepted Answer

A)   $78.21
B)   $80.21
C)   $84.21
D)   $88.21
E)   $92.21F) B) and C)
G) A) and E)

Question 8

Shares of the Katydid Co. common stock are currently selling for $27.73. The last dividend paid was $1.60 per share. The market rate of return is 10%. At what rate is the dividend growing?

Accepted Answer

A)   2.50%
B)   4.00%
C)   5.98%
D)   13.05%
E)   14.91%F) All of the above
G) D) and E)

Question 9

How much are you willing to pay today for one share of stock if the company just paid a $1.40 annual dividend, the dividends increase by 4% annually, and you require a 12% rate of return?

Accepted Answer

A)   $8.75
B)   $9.10
C)   $16.83
D)   $17.50
E)   $18.20F) B) and D)
G) A) and C)

Question 10

The Double Dip Co. is expecting its ice cream sales to decline due to the increased interest in healthy eating. Thus, the company has announced that it will be reducing its annual dividend by 5%
A year for the next two years. After that, it will maintain a constant dividend of $1 a share. Last year,
The company paid $1.40 per share. What is this stock worth to you if you require a 9% rate of return?

Accepted Answer

A)   $10.86
B)   $11.11
C)   $11.64
D)   $12.98
E)   $14.23F) A) and B)
G) A) and C)

Question 11

Suppose that you have just purchased a share of stock for $22.51. The most recent dividend was $1.50 and dividends are expected to grow at a rate of 5% indeﬁnitely. What must your required
Return be on the stock?

Accepted Answer

A)   5.00%
B)   7.00%
C)   10.25%
D)   12.00%
E)   13.67%F) None of the above
G) A) and E)

Question 12

ABC Corporation has just paid a $4 dividend. Dividend growth rate has been at 3% and expected to be so into the future. If investor's return is 12%, calculate the stock price three years ago.

Accepted Answer

A)   $45.59
B)   $44.59
C)   $43.89
D)   $42.59
E)   $41.89F) B) and E)
G) A) and D)

Question 13

The MIKO Corp. paid $0.84 in dividends last year. It has just announced that it expects to increase its dividends by 2% each year for the foreseeable future. Currently, MIKO stock is priced at $21.32
Per share. What is the rate of return on MIKO stock?

Accepted Answer

A)   4.01%
B)   4.96%
C)   5.86%
D)   5.94%
E)   6.02%F) A) and B)
G) A) and C)

Question 14

Rosebud Florists pays a constant dividend of $1.50 a share. The company announced today that it will continue to do this for another 2 years after which time it will discontinue paying dividends
Permanently. What is one share of this stock worth today if the required rate of return is 7.5%?

Accepted Answer

A)   $2.45
B)   $2.55
C)   $2.69
D)   $2.79
E)   $3.00F) C) and E)
G) A) and C)

Question 15

XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has been at 2% and expected to be so into the future. If investor's return is 10%, calculate the stock price now.

Accepted Answer

A)   $37.50
B)   $37.75
C)   $38.00
D)   $38.25
E)   $38.50F) C) and D)
G) B) and E)

Question 16

The capital gains yield as used in the dividend growth model is deﬁned as:

Accepted Answer

A)   D0/P0.
B)   D1/P0.
C)   g/r.
D)   g.
E)   g/P0.F) A) and B)
G) C) and D)

Question 17

If a company has a current stock price of $25, an EPS of $2.75/share; EPS growth rate of 15% and the investors rate of return is 20%, calculate the cash cow price.

Accepted Answer

A)   $13.75
B)   $14.50
C)   $15.25
D)   $16.00
E)   $16.75F) D) and E)
G) B) and C)

Question 18

Martin's Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its
Business has leveled off and sales are expected to remain relatively constant. Given the lack of
Future growth, you will only buy this stock if you can earn at least a 15% rate of return. What is the
Maximum amount you are willing to pay to buy one share of this stock today?

Accepted Answer

A)   $10.00
B)   $13.33
C)   $16.67
D)   $18.88
E)   $20.00F) All of the above
G) B) and E)

Question 19

Etling Inc.'s dividend is expected to grow at 6% for the next two years and then at 3% forever. If the current dividend is $3 and the required return is 16%, what is the price of the stock?

Accepted Answer

A)   $25.10
B)   $25.82
C)   $26.15
D)   $27.58
E)   $29.45F) B) and D)
G) A) and C)

Question 20

Home Builders, Inc. is a very cyclical type of business which is reﬂected in their dividend policy. The ﬁrm pays a $3.50 per share dividend every other year. The last dividend was paid last year. Four
Years from now, the company plans to pay a $77 liquidating dividend per share. What is the current
Market value of this stock if the market rate of return is 18.5%?

Accepted Answer

A)   $41.54
B)   $43.32
C)   $44.11
D)   $46.59
E)   $48.37F) C) and E)
G) C) and D)

Exam 8: Stock Valuation

The voting procedure where shareholders grant authority to another individual to vote their shares is called:

Correct Answer
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Shares of the Katydid Co. common stock are currently selling for $27.73. The last dividend paid was $1.60 per share. The market rate of return is 10%. At what rate is the dividend growing?

Correct Answer
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The capital gains yield as used in the dividend growth model is deﬁned as:

Correct Answer
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Rosebud Florists pays a constant dividend of $1.50 a share. The company announced today that it will continue to do this for another 2 years after which time it will discontinue paying dividends Permanently. What is one share of this stock worth today if the required rate of return is 7.5%?

Correct Answer
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How much are you willing to pay today for one share of stock if the company just paid a $1.40 annual dividend, the dividends increase by 4% annually, and you require a 12% rate of return?

Correct Answer
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Next year's annual dividend divided by the current stock price is called the:

Correct Answer
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Suppose that you have just purchased a share of stock for $22.51. The most recent dividend was $1.50 and dividends are expected to grow at a rate of 5% indeﬁnitely. What must your required Return be on the stock?

Correct Answer
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Correct Answer
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If a company has a current stock price of $25, an EPS of $2.75/share; EPS growth rate of 15% and the investors rate of return is 20%, calculate the cash cow price.

Correct Answer
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Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price of ABC stock needs To _____ if Fred is to achieve his 10% rate of return.

Correct Answer
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Correct Answer
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Etling Inc.'s dividend is expected to grow at 6% for the next two years and then at 3% forever. If the current dividend is $3 and the required return is 16%, what is the price of the stock?

Correct Answer
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XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has been at 2% and expected to be so into the future. If investor's return is 10%, calculate the stock price now.

Correct Answer
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Correct Answer
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The owner of preferred stock:

Correct Answer
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The MIKO Corp. paid $0.84 in dividends last year. It has just announced that it expects to increase its dividends by 2% each year for the foreseeable future. Currently, MIKO stock is priced at $21.32 Per share. What is the rate of return on MIKO stock?

Correct Answer
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Correct Answer
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KwakMotors Inc. pays quarterly dividends of $2.00 dividend and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9.5% on Your investment?

Correct Answer
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The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the:

Correct Answer
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ABC Corporation has just paid a $4 dividend. Dividend growth rate has been at 3% and expected to be so into the future. If investor's return is 12%, calculate the stock price three years ago.

Correct Answer
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Exam 8: Stock Valuation

The voting procedure where shareholders grant authority to another individual to vote their shares is called:

Correct AnswerverifiedShow Answer

Shares of the Katydid Co. common stock are currently selling for $27.73. The last dividend paid was $1.60 per share. The market rate of return is 10%. At what rate is the dividend growing?

Correct AnswerverifiedShow Answer

The capital gains yield as used in the dividend growth model is deﬁned as:

Correct AnswerverifiedShow Answer

Rosebud Florists pays a constant dividend of $1.50 a share. The company announced today that it will continue to do this for another 2 years after which time it will discontinue paying dividends Permanently. What is one share of this stock worth today if the required rate of return is 7.5%?

Correct AnswerverifiedShow Answer

How much are you willing to pay today for one share of stock if the company just paid a $1.40 annual dividend, the dividends increase by 4% annually, and you require a 12% rate of return?

Correct AnswerverifiedShow Answer

Next year's annual dividend divided by the current stock price is called the:

Correct AnswerverifiedShow Answer

Suppose that you have just purchased a share of stock for $22.51. The most recent dividend was $1.50 and dividends are expected to grow at a rate of 5% indeﬁnitely. What must your required Return be on the stock?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a company has a current stock price of $25, an EPS of $2.75/share; EPS growth rate of 15% and the investors rate of return is 20%, calculate the cash cow price.

Correct AnswerverifiedShow Answer

Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price of ABC stock needs To _____ if Fred is to achieve his 10% rate of return.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Etling Inc.'s dividend is expected to grow at 6% for the next two years and then at 3% forever. If the current dividend is $3 and the required return is 16%, what is the price of the stock?

Correct AnswerverifiedShow Answer

XYZ Corporation's next dividend is expected to be $3 per share. Dividend growth rate has been at 2% and expected to be so into the future. If investor's return is 10%, calculate the stock price now.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The owner of preferred stock:

Correct AnswerverifiedShow Answer

The MIKO Corp. paid $0.84 in dividends last year. It has just announced that it expects to increase its dividends by 2% each year for the foreseeable future. Currently, MIKO stock is priced at $21.32 Per share. What is the rate of return on MIKO stock?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

KwakMotors Inc. pays quarterly dividends of $2.00 dividend and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9.5% on Your investment?

Correct AnswerverifiedShow Answer

The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the:

Correct AnswerverifiedShow Answer

ABC Corporation has just paid a $4 dividend. Dividend growth rate has been at 3% and expected to be so into the future. If investor's return is 12%, calculate the stock price three years ago.

Correct AnswerverifiedShow Answer

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