Exam 8: The Valuation and Characteristics of Stock

A financial analyst expects Crane Service Inc.to pay a dividend of $2 per share one year from today,a dividend of $3 per share in years two,and estimates the value of the stock at the end of year two to be $22.If your required return on Crane Service stock is 14 %,what is the most you would be willing to pay for the stock today if you plan to sell the stock in two years?

If two firms have the same current dividend and the same expected growth rate,their stocks must sell at the same current price or else the market will not be in equilibrium.

What provisions are available to protect a preferred stockholder?

An example of the growth factor in common stock is

Southland Tours has net income of $2 million this year.The book value of Southland Tours common equity is $8 million dollars.The company's dividend payout ratio is 60% and is expected to remain this way.What is Southland Tours' internal growth rate?

The upper limit on common stock dividends,which is set by the SEC,is generally equal to the sum of dividends paid on the company's preferred stock.

The common stock of a constant-growth firm is valued in the same manner as its preferred stock.

What is the value of a preferred stock that pays a $5.55 dividend to an investor with a required rate of return of 10%?

Two approaches that allow for the retirement of preferred stock are call provisions and sinking fund provisions.

Castle,Inc.paid a dividend yesterday of $2 per share.Castle management expects the dividend to increase next year to $3 annually.If the dividend is expected to stay at $3 per year for the foreseeable future,what is the value of the stock to an investor with a required rate of return of 10%?

Under majority voting,a majority (>50%)shareholder will be able to elect the entire board of directors.

U.S Technologies preferred stock sells for $80 and pays $9 each year in dividends.What is the expected rate of return?

Common stock cannot be worth less than its book value.

Minority shareholders have a greater chance of electing a member to the board of directors if the company uses

Asymmetric Frames Corp.had a return on equity of 15%.The corporation's earnings per share was $6.00,its dividend payout ratio was 40% and its profit-retention rate was 60%.If these relationships continue,what will be United Financial Corp.'s internal growth rate?

Given the constant growth dividend valuation model,the expected percentage growth in value of a stock is equal to the capital gains yield for that stock.

Stimpson Inc.preferred stock pays a $.50 annual dividend.What is the value of the stock if your required rate of return is 10%?

Common stock does not mature.

Jackson Corp.common stock paid $2.50 in dividends last year (D0).Dividends are expected to grow at a 12-percent annual rate forever.If Jackson's current market price is $40.00,what is the stock's expected rate of return (nearest .01 percent)?

If a firm does not have enough money to pay any common stock dividends,it is technically in default to the common shareholders.