Exam 6: Common Stock Valuation

Precision Engineering recently announced that its next annual dividend will be $1.20 per share with later dividends increasing by 2.5 percent annually. What is the current value of this stock to you if you require a 12 percent rate of return?

Oak Supply has earnings per share of $2.34. The firm has $750,000 in equity and 50,000 shares of stock outstanding. What is the return on equity?

Georgia Nursery is a relatively young firm which just paid its first annual dividend of $.50 a share. Management projects dividend increases of 15 percent per year for five years followed by a constant growth rate of 5.0 percent annually. What is this stock worth today if the applicable discount rate is 10 percent?

Dennison Mfg. pays annual dividends. For the past six years, the firm has paid dividends of $1.10, $1.15 $1.20, $1.25, $1.30, and $1.35, respectively. What is the geometric average dividend growth rate for this time period?

A financial performance measure based on the difference between a firm's actual earnings and required earnings is sometimes called:

The retention ratio is the:

A firm has paid annual dividends of $1.34, $1.43, $1.55, $1.62, $1.64, and $1.75 per share over the past 6 years, respectively. What is the geometric average growth rate for these dividends?

The portion of net income that is held by a firm for future growth comprises which one of the following balance sheet accounts?

Western Adventures has earnings per share of $2.30 and dividends per share of $1.25. The total equity of the firm is $850,000. There are 40,000 shares of stock outstanding. What is the sustainable rate of growth?

Which one of the following is correct concerning the two-stage dividend growth model?

America Boats plans to pay a $2.10 a share dividend at the end of each of the next two years. At the end of Year 3, it will pay a final liquidating dividend of $13 a share. After that, the company plans to close its doors permanently. What is the current value of this stock at a discount rate of 12 percent?

McDucket, Inc. generates net profit of $592,000 and has a price-book ratio of 5.2. Total assets are $2,320,000 and total liabilities are $1,289,000. The company has 560,000 common stock outstanding. What is the price-to-earnings ratio?

The current book value per share of B.L. Black & Sons is $5.35 and the required return on the stock is 15.5 percent. The firm expects earnings per share of $2.25 next year with annual earnings growth of 4.5 percent. What is the current market value of this stock?

McKenzie, Inc., reported EBIT of $8.5 million for last year. Depreciation expense totaled $5 million and capital expenditures came to $2 million. Free cash flow is expected to grow at a rate of 2.5% for the foreseeable future. McKenzie faces a 21 percent tax rate and has a .50 debt to equity ratio with $20 million (market value)in debt outstanding. McKenzie's equity beta is 1.4, the risk-free rate is currently 5 percent and the market risk premium is estimated to be 7.5 percent. McKenzie has 10 million shares of common stock outstanding. What is the current value of a share of McKenzie stock (in millions)?

Alpha Wood Interiors announced that it is going out of business. As of today, no more regular dividends will be paid. The firm will, however, pay two liquidating dividends. The first will be paid one year from now in the amount of $17 a share. The second and final payment will be paid two years from now at an estimated $32 a share. What is the value of this stock today at a discount rate of 6 percent?

API has just paid an annual dividend of $1.39 per share and expects to increase it by 3.5 percent annually for the foreseeable future. Calculate the current value of API's common stock given a discount rate of 6 percent.

Quality Home Made Ice Cream has plans to pay decreasing annual dividends of $1.60, $1.50, and $1.35 over the next three years, respectively. After that, the firm will increase the dividend by 5 percent each year. What is the value of this stock today at a discount rate of 11 percent?

The Barclay House increases its dividend each year. The next annual dividend is expected to be $1.35 a share. Future dividends will increase by 3.5 percent annually. What is the current value of this stock if the discount rate is 8 percent?

The constant perpetual growth model is applicable to those firms which:

Miller's Farm has 100,000 shares of stock outstanding, sales of $1,550,000, and net income of $95,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given this information, what is the current stock price?