Exam 8: The Valuation and Characteristics of Stock

Shackleford Corporation net income this year is $800,000.The company generally retains 35% of net income for reinvestment.The company's common equity currently has a book value of $5,000,000.They just paid a dividend of $1.37,and the required rate of return on this stock is 12%.Compute the value of this stock if dividends are expected to continue growing indefinitely at the company's internal growth rate.

A call provision entitles a company to repurchase its preferred stock from holders at stated prices over a given time period.

A sinking-fund provision allows for the retirement of a portion of preferred stock each year.

Bacon Signs Company preferred stock pays a perpetual annual dividend of 4.5% of its $100 par value.If investors' required rate of return on this stock is 12%,what is the value per share?

Which of the following statements concerning the constant growth dividend valuation model is true?

A company's market capitalization is generally greater than its book value,in part due to its reputation for being able to deliver growth,attract top talent,and avoid ethical mistakes.

Tannerly Worldwide's common stock is currently selling for $48 a share.If the expected dividend at the end of the year is $2.40 and last year's dividend was $2.00,what is the rate of return implicit in the current stock price?

Waterfront Solutions,Inc.paid a dividend of $5.00 per share on its common stock yesterday.Dividends are expected to grow at a constant rate of 4% for the next two years,at which point the stock is expected to sell for $56.00.If investors require a rate of return on Waterfront's common stock of 18%,what should the stock sell for today?

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following,where D1 is the next dividend and Vc is the current value of the stock?

Which of the following is NOT true regarding common stock?

Dynamic Industries paid a dividend of $1.65 on its common stock yesterday.The dividends of Wallace Industries are expected to grow at 9% per year indefinitely.If the risk-free rate is 3% and investors' risk premium on this stock is 8%,estimate the value of Wallace Industries stock 2 years from now.

You are considering the purchase of a common stock that paid a dividend of $2.00 yesterday.You expect this stock to have a growth rate of 15 percent for the next 3 years,resulting in dividends of D1 = $2.30,D2 = $2.645,and D3 = $3.04.The long-run normal growth rate after year 3 is expected to be 10 percent (that is,a constant growth rate after year 3 of 10% per year forever).If you require a 14 percent rate of return,how much should you be willing to pay for this stock?

Because common stock represents a residual interest in the corporation,the value of common stock is equal to the total firm value less the firm's outstanding debt.

The common stock of Cranberry Inc.is selling for $26.75 on the open market.Next year's dividend is expected to be $3.68,and the growth rate of this company is estimated to be 5.5%.If Richard Dean,an average investor,is considering purchasing this stock at the market price,what is his expected rate of return?

Most preferred stocks have a feature that requires all past unpaid preferred dividend payments be paid before any common stock dividends can be paid.What is the name of this feature?

Beaver Corp.preferred stock has a market price of $14.50.If it has a yearly dividend of $3.50,what is your expected rate of return if you purchase the stock at its market price?

Preferred stock is less risky than common stock,but more risky than debt.

Using the dividend valuation method,an analyst determines the value of Company A's stock to be $10 and the value of Company B's stock to be $14.Based on this information,which of the following statements is most accurate?

Kinard's Kennels Inc.ROE is 20%.Their dividend payout ratio is 70%.The last dividend,just paid,was $2.00.If dividends are expected to grow by the company's internal growth rate indefinitely,what is the current value of Kinard's common stock if its required return is 18%?

You are considering the purchase of a share of Ranch's common stock.You expect to sell it at the end of 1 year for $32.00.You will also receive a dividend of $2.50 at the end of the year.Ranch just paid a dividend of $2.25.If your required return on this stock is 12%,what is the most you would be willing to pay for it now?