Question 1

Which one of these statements related to preferred stock is correct?

Accepted Answer

A)  Preferred shareholders normally receive one vote per share of stock owned. 
B)  Preferred shareholders determine the outcome of any election that involves a proxy fight. 
C)  Preferred shareholders are considered to be the residual owners of a corporation. 
D)  Preferred stock normally has a stated liquidating value of $1,000 per share. 
E)  Cumulative preferred shares are more valuable than comparable noncumulative shares. 
A)  Preferred shareholders normally receive one vote per share of stock owned. 
B)  Preferred shareholders determine the outcome of any election that involves a proxy fight. 
C)  Preferred shareholders are considered to be the residual owners of a corporation. 
D)  Preferred stock normally has a stated liquidating value of $1,000 per share. 
E)  Cumulative preferred shares are more valuable than comparable noncumulative shares.

Question 2

HCC, Inc., expects its dividends to grow at 25 percent per year for the next seven years before levelling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05?

Accepted Answer

A)  $43.21 
B)  $44.36 
C)  $38.93 
D)  $32.11 
E)  $39.96 
A)  $43.21 
B)  $44.36 
C)  $38.93 
D)  $32.11 
E)  $39.96

Question 3

Over the next three years, Distant Groves will pay annual dividends of $.65, $.70, and $.75 a share, respectively. After that, dividends are projected to increase by 2 percent per year. What is one share of this stock worth today at a required return of 14.5 percent?

Accepted Answer

A)  $5.49 
B)  $5.94 
C)  $5.68 
D)  $5.55 
E)  $5.86 
A)  $5.49 
B)  $5.94 
C)  $5.68 
D)  $5.55 
E)  $5.86

Question 4

The secondary market is best defined as the market:

Accepted Answer

A)  in which subordinated shares are issued and resold. 
B)  conducted solely by brokers. 
C)  dominated by dealers. 
D)  where outstanding shares of stock are resold. 
E)  where warrants are offered and sold. 
A)  in which subordinated shares are issued and resold. 
B)  conducted solely by brokers. 
C)  dominated by dealers. 
D)  where outstanding shares of stock are resold. 
E)  where warrants are offered and sold.

Question 5

Global Logistics just announced it is increasing its annual dividend to $1.68 next year and will increase that dividend by 1.85 percent annually thereafter. How much will one share of this stock be worth ten years from now if the required rate of return is 12.8 percent?

Accepted Answer

A)  $18.43 
B)  $18.26 
C)  $18.09 
D)  $19.12 
E)  $18.77 
A)  $18.43 
B)  $18.26 
C)  $18.09 
D)  $19.12 
E)  $18.77

Question 6

Which one of the following best describes NASDAQ?

Accepted Answer

A)  Largest U.S. stock market in terms of dollar trading volume 
B)  Market where dealers buy at the asked price 
C)  Market where the designated market makers are located at posts 
D)  Computer network of securities dealers 
E)  Market with three physical trading floors 
A)  Largest U.S. stock market in terms of dollar trading volume 
B)  Market where dealers buy at the asked price 
C)  Market where the designated market makers are located at posts 
D)  Computer network of securities dealers 
E)  Market with three physical trading floors

Question 7

Which one of the following statements related to corporate dividends is correct?

Accepted Answer

A)  Dividends are nontaxable income to shareholders. 
B)  Dividends reduce the taxable income of the corporation. 
C)  The chief executive officer of a corporation is responsible for declaring dividends. 
D)  The chief financial officer of a corporation determines the amount of dividend to be paid. 
E)  Corporate shareholders may receive a tax break on a portion of their dividend income. 
A)  Dividends are nontaxable income to shareholders. 
B)  Dividends reduce the taxable income of the corporation. 
C)  The chief executive officer of a corporation is responsible for declaring dividends. 
D)  The chief financial officer of a corporation determines the amount of dividend to be paid. 
E)  Corporate shareholders may receive a tax break on a portion of their dividend income.

Question 8

AC Electric just paid its annual dividend of $2.42. The firm plans to increase its dividend by 2.5 percent for the next 3 years and then maintain a constant 2 percent rate of dividend growth. The required return is 12.5 percent. What is the current value per share of this stock?

Accepted Answer

A)  $32.95 
B)  $23.09 
C)  $22.22 
D)  $28.47 
E)  $23.82 
A)  $32.95 
B)  $23.09 
C)  $22.22 
D)  $28.47 
E)  $23.82

Question 9

Ernst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?

Accepted Answer

A)  Private 
B)  Auction 
C)  Tertiary 
D)  Secondary 
E)  Primary 
A)  Private 
B)  Auction 
C)  Tertiary 
D)  Secondary 
E)  Primary

Question 10

A firm has a current EPS of $1.63 and a benchmark PE of 11.7. Earnings are expected to grow 2.6 percent annually. What is the target stock price in one year?

Accepted Answer

A)  $19.57 
B)  $22.89 
C)  $19.07 
D)  $20.14 
E)  $21.08 
A)  $19.57 
B)  $22.89 
C)  $19.07 
D)  $20.14 
E)  $21.08

Question 11

A preferred stock pays an annual dividend of $5.40 and sells for $63.20 a share. What is the rate of return?

Accepted Answer

A)  9.38 percent 
B)  9.03 percent 
C)  8.54 percent 
D)  8.72 percent 
E)  8.84 percent 
A)  9.38 percent 
B)  9.03 percent 
C)  8.54 percent 
D)  8.72 percent 
E)  8.84 percent

Question 12

Shore Hotels just paid an annual dividend of $1.50 per share. The company will increase its dividend by 7 percent next year and will then reduce its dividend growth rate by 2 percentage points per year until it reaches the industry average of 3 percent dividend growth, after which the company will keep a constant growth rate forever. What is the price of this stock today given a required return of 14 percent?

Accepted Answer

A)  $14.85 
B)  $18.99 
C)  $11.83 
D)  $16.54 
E)  $13.02 
A)  $14.85 
B)  $18.99 
C)  $11.83 
D)  $16.54 
E)  $13.02

Question 13

Winston Co. has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true?

Accepted Answer

A)  The dividend must be constant. 
B)  The stock has a negative capital gains yield. 
C)  The capital gains yield must be zero. 
D)  The required rate of return for this stock increased over the year. 
E)  The firm is experiencing supernormal growth. 
A)  The dividend must be constant. 
B)  The stock has a negative capital gains yield. 
C)  The capital gains yield must be zero. 
D)  The required rate of return for this stock increased over the year. 
E)  The firm is experiencing supernormal growth.

Question 14

You want to purchase some shares of JJ Farms stock but need a rate of return of 17.5 percent to compensate for the perceived risk. What is the maximum you are willing to pay per share for this stock if the company pays a constant $2.43 annual dividend per share?

Accepted Answer

A)  $11.11 
B)  $13.89 
C)  $9.26 
D)  $7.20 
E)  $8.47 
A)  $11.11 
B)  $13.89 
C)  $9.26 
D)  $7.20 
E)  $8.47

Question 15

A preferred stock sells for $63.60 a share and provides a return of 8.40 percent. What is the amount of the dividend per share?

Accepted Answer

A)  $5.45 
B)  $5.25 
C)  $5.34 
D)  $5.43 
E)  $5.28 
A)  $5.45 
B)  $5.25 
C)  $5.34 
D)  $5.43 
E)  $5.28

Question 16

NASDAQ has:

Accepted Answer

A)  an electronic network that transmits orders directly to the trading floor. 
B)  both floor and commission brokers. 
C)  three separate markets. 
D)  a single designated market maker for each listed stock. 
E)  level 3 data available online for easy access by all investors. 
A)  an electronic network that transmits orders directly to the trading floor. 
B)  both floor and commission brokers. 
C)  three separate markets. 
D)  a single designated market maker for each listed stock. 
E)  level 3 data available online for easy access by all investors.

Question 17

Electric Utilities preferred stock will pay an annual dividend of $12 per share in perpetuity beginning 8 years from now. What is one share of this stock worth today if the market requires a return of 9.5 percent?

Accepted Answer

A)  $66.92 
B)  $64.16 
C)  $69.08 
D)  $61.11 
E)  $63.09 
A)  $66.92 
B)  $64.16 
C)  $69.08 
D)  $61.11 
E)  $63.09

Question 18

Raul wants to join the directors of World Trade but currently owns no shares in the company. He knows that no one else will help elect him. Assume there are 46,000 shares outstanding at a market price of $12.80 a share. What is the minimum amount Raul must spend to acquire a seat on the board of directors if there are three open seats and straight voting applies?

Accepted Answer

A)  $147,212.80 
B)  $196,266.67 
C)  $294,412.80 
D)  $147,200.00 
E)  $294,400.00 
A)  $147,212.80 
B)  $196,266.67 
C)  $294,412.80 
D)  $147,200.00 
E)  $294,400.00

Question 19

What are the distributions of either cash or stock to shareholders by a corporation called?

Accepted Answer

A)  Coupon payments 
B)  Retained earnings 
C)  Dividends 
D)  Capital payments 
E)  Diluted profits 
A)  Coupon payments 
B)  Retained earnings 
C)  Dividends 
D)  Capital payments 
E)  Diluted profits

Question 20

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Accepted Answer

A)  Maximal-growth model 
B)  Constant-growth model 
C)  Capital pricing model 
D)  Realized-earnings model 
E)  Realized-growth model 
A)  Maximal-growth model 
B)  Constant-growth model 
C)  Capital pricing model 
D)  Realized-earnings model 
E)  Realized-growth model

Exam 8: Stock Valuation

Which one of these statements related to preferred stock is correct?

HCC, Inc., expects its dividends to grow at 25 percent per year for the next seven years before levelling off to a constant 3 percent growth rate. The required return is 11 percent. What is the current stock price if the annual dividend per share that was just paid was $1.05?

Over the next three years, Distant Groves will pay annual dividends of $.65, $.70, and $.75 a share, respectively. After that, dividends are projected to increase by 2 percent per year. What is one share of this stock worth today at a required return of 14.5 percent?

The secondary market is best defined as the market:

Global Logistics just announced it is increasing its annual dividend to $1.68 next year and will increase that dividend by 1.85 percent annually thereafter. How much will one share of this stock be worth ten years from now if the required rate of return is 12.8 percent?

Which one of the following best describes NASDAQ?

Which one of the following statements related to corporate dividends is correct?

AC Electric just paid its annual dividend of $2.42. The firm plans to increase its dividend by 2.5 percent for the next 3 years and then maintain a constant 2 percent rate of dividend growth. The required return is 12.5 percent. What is the current value per share of this stock?

Ernst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?

A firm has a current EPS of $1.63 and a benchmark PE of 11.7. Earnings are expected to grow 2.6 percent annually. What is the target stock price in one year?

A preferred stock pays an annual dividend of $5.40 and sells for $63.20 a share. What is the rate of return?

Winston Co. has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true?

You want to purchase some shares of JJ Farms stock but need a rate of return of 17.5 percent to compensate for the perceived risk. What is the maximum you are willing to pay per share for this stock if the company pays a constant $2.43 annual dividend per share?

A preferred stock sells for $63.60 a share and provides a return of 8.40 percent. What is the amount of the dividend per share?

NASDAQ has:

Electric Utilities preferred stock will pay an annual dividend of $12 per share in perpetuity beginning 8 years from now. What is one share of this stock worth today if the market requires a return of 9.5 percent?

What are the distributions of either cash or stock to shareholders by a corporation called?

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Short Term Finance and Planning

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters