Question 1

What is the percentage of a firm's earnings that is distributed to shareholders called?

Accepted Answer

A)  payout ratio 
B)  distribution percentage 
C)  retention ratio 
D)  dividend portion 
E)  outflow ratio 
A)  payout ratio 
B)  distribution percentage 
C)  retention ratio 
D)  dividend portion 
E)  outflow ratio

Question 2

A firm has paid annual dividends of $1.41,$1.43,$1.55,$1.62,$1.64,and $1.68 per share over the past 6 years,respectively.What is the geometric average growth rate for these dividends?

Accepted Answer

A)  3.19 percent 
B)  3.28 percent 
C)  3.48 percent 
D)  3.57 percent 
E)  3.74 percent 
A)  3.19 percent 
B)  3.28 percent 
C)  3.48 percent 
D)  3.57 percent 
E)  3.74 percent

Question 3

The common stock of A.G.Tailor has a required return of 16 percent.The latest press release stated that last year's dividend was $0.90 per share and that future dividends will increase by 15 percent for the following 3 years.After that,the dividend growth rate will be 3 percent indefinitely.What is one share of this stock worth to you today?

Accepted Answer

A)  $8.42 
B)  $9.60 
C)  $10.26 
D)  $10.75 
E)  $12.03 
A)  $8.42 
B)  $9.60 
C)  $10.26 
D)  $10.75 
E)  $12.03

Question 4

Which one of the following is a requirement of the two-stage dividend growth model?

Accepted Answer

A)  both growth rates must be less than the discount rate 
B)  one of the two growth rates must exceed the discount rate 
C)  the first growth rate must exceed the second growth rate 
D)  the first growth rate must equal the discount rate 
E)  the second growth rate must be less than the discount rate 
A)  both growth rates must be less than the discount rate 
B)  one of the two growth rates must exceed the discount rate 
C)  the first growth rate must exceed the second growth rate 
D)  the first growth rate must equal the discount rate 
E)  the second growth rate must be less than the discount rate

Question 5

An increase in the retention ratio will:

Accepted Answer

A)  increase the dividends per share. 
B)  decrease a firm's sustainable rate of growth. 
C)  decrease the equity of a firm. 
D)  increase the dividend growth rate. 
E)  increase the value of a firm's stock. 
A)  increase the dividends per share. 
B)  decrease a firm's sustainable rate of growth. 
C)  decrease the equity of a firm. 
D)  increase the dividend growth rate. 
E)  increase the value of a firm's stock.

Question 6

America Boats plans to pay a $2.10 a share dividend at the end of each of the next 2 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?

Accepted Answer

A)  $9.89 
B)  $10.26 
C)  $11.54 
D)  $12.80 
E)  $13.50 
A)  $9.89 
B)  $10.26 
C)  $11.54 
D)  $12.80 
E)  $13.50

Question 7

Art Supplies has a net income of $138,600.The firm has $1.25 million in assets and $500,000 in liabilities.What is the return on equity?

Accepted Answer

A)  13.87 percent 
B)  15.09 percent 
C)  16.44 percent 
D)  18.48 percent 
E)  21.21 percent 
A)  13.87 percent 
B)  15.09 percent 
C)  16.44 percent 
D)  18.48 percent 
E)  21.21 percent

Question 8

A firm has net income of $198,500 and total equity of 1.15 million.There are 220,000 shares of stock outstanding at a price per share of $14.80.What is the firm's price-earnings ratio?

Accepted Answer

A)  16.21 
B)  16.40 
C)  17.09 
D)  17.28 
E)  17.94 
A)  16.21 
B)  16.40 
C)  17.09 
D)  17.28 
E)  17.94

Question 9

Lambert Corporation reported net income of $60 million for last year.Depreciation expense totaled $20 million and capital expenditures came to $5 million.Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future.Lambert faces a 40% tax rate and has a 0.45 debt to equity ratio with $255 million (market value)in debt outstanding.Lambert's equity beta is 1.30,the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%.What is the current total value of Lambert's equity (in millions)?

Accepted Answer

A)  $655.90 
B)  $731.20 
C)  $840.61 
D)  $951.26 
E)  $1,025.95 
A)  $655.90 
B)  $731.20 
C)  $840.61 
D)  $951.26 
E)  $1,025.95

Question 10

Knit 'n Needle started paying dividends 4 years ago.The annual dividends thus far have been $0.35,$0.38,$0.42,and $0.48,respectively.What is the arithmetic average dividend growth rate?

Accepted Answer

A)  6.33 percent 
B)  8.58 percent 
C)  9.70 percent 
D)  10.80 percent 
E)  11.13 percent 
A)  6.33 percent 
B)  8.58 percent 
C)  9.70 percent 
D)  10.80 percent 
E)  11.13 percent

Question 11

The Free Cash Flow Model: I.can be used to value a company with negative earnings.
II)is based on a firm having positive cash flows.
III)requires that a firm pay a dividend.
IV)directly estimates a value for a firm's equity

Accepted Answer

A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III only 
E)  I, II, III, and IV 
A)  I only 
B)  I and II only 
C)  I and III only 
D)  I, II, and III only 
E)  I, II, III, and IV

Question 12

The Shoe Box will not pay a dividend for the next two years.The following two years,it will pay annual dividends of $1 per share.Starting in year 5,the dividends will increase by 4 percent annually.The discount rate is 8 percent.What is the value of this stock today?

Accepted Answer

A)  $18.18 
B)  $20.64 
C)  $22.63 
D)  $24.08 
E)  $27.09 
A)  $18.18 
B)  $20.64 
C)  $22.63 
D)  $24.08 
E)  $27.09

Question 13

The common stock of JL Recyclers has a required return of 12 percent and a current value of $18.72.The company pays its dividend annually and increases the amount by 4 percent each year.You own 300 shares of this stock.What was the total amount of the last dividend you received?

Accepted Answer

A)  $319 
B)  $360 
C)  $432 
D)  $480 
E)  $513 
A)  $319 
B)  $360 
C)  $432 
D)  $480 
E)  $513

Question 14

An analysis of which of the following are commonly included as part of fundamental analysis?
I.sales
II.book value
III.earnings per share
IV.cash flow

Accepted Answer

A)  I and II only 
B)  I and IV only 
C)  II, III, and IV only 
D)  I, II, and IV only 
E)  I, II, III, and IV 
A)  I and II only 
B)  I and IV only 
C)  II, III, and IV only 
D)  I, II, and IV only 
E)  I, II, III, and IV

Question 15

What is the market value of a share of stock divided by the net income per share called?

Accepted Answer

A)  earnings per share 
B)  price-earnings ratio 
C)  value-earnings ratio 
D)  earnings yield 
E)  market multiple 
A)  earnings per share 
B)  price-earnings ratio 
C)  value-earnings ratio 
D)  earnings yield 
E)  market multiple

Question 16

Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now.The firm's liquidation plan calls for annual dividends of $3,$6,and $36 over the next 3 years,respectively.What is the current value of this stock given a discount rate of 14 percent?

Accepted Answer

A)  $26.94 
B)  $27.16 
C)  $28.46 
D)  $31.50 
E)  $36.29 
A)  $26.94 
B)  $27.16 
C)  $28.46 
D)  $31.50 
E)  $36.29

Question 17

Over the past 4 years,a local firm has paid annual dividends of $1.52,$1.55,$1.60,and $1.68.What is the arithmetic average dividend growth rate?

Accepted Answer

A)  2.69 percent 
B)  2.98 percent 
C)  3.24 percent 
D)  3.40 percent 
E)  3.62 percent 
A)  2.69 percent 
B)  2.98 percent 
C)  3.24 percent 
D)  3.40 percent 
E)  3.62 percent

Question 18

Ultra Fine Furnishings is in the process of selling its peripheral businesses and focusing on its upscale clients.In conjunction with this reorganization,the dividend will be decreased by 10 percent for the next three years.After that,the dividend will resume increasing at an annual rate of 5 percent.The required return on this stock is 14 percent and the last dividend paid was $2.40 a share.What is one share of this stock worth today?

Accepted Answer

A)  $17.34 
B)  $18.08 
C)  $18.35 
D)  $19.68 
E)  $20.72 
A)  $17.34 
B)  $18.08 
C)  $18.35 
D)  $19.68 
E)  $20.72

Question 19

Miller's Farm has 120,000 shares of stock outstanding,sales of $850,000,and net income of $55,000.Financial analysts believe the price-earnings ratio for this firm should be 15.8.Given this information,what should be the current stock price?

Accepted Answer

A)  $7.24 
B)  $8.87 
C)  $14.85 
D)  $14.57 
E)  $15.21 
A)  $7.24 
B)  $8.87 
C)  $14.85 
D)  $14.57 
E)  $15.21

Question 20

Over the past 5 years,DL Insulation has paid annual dividends of $1.40,$1.55,$1.70,$1.73,and $1.77 per share.What is the geometric average dividend growth rate for this period?

Accepted Answer

A)  4.80 percent 
B)  5.79 percent 
C)  5.88 percent 
D)  6.04 percent 
E)  6.33 percent 
A)  4.80 percent 
B)  5.79 percent 
C)  5.88 percent 
D)  6.04 percent 
E)  6.33 percent

What is the percentage of a firm's earnings that is distributed to shareholders called?

A firm has paid annual dividends of $1.41,$1.43,$1.55,$1.62,$1.64,and $1.68 per share over the past 6 years,respectively.What is the geometric average growth rate for these dividends?

Which one of the following is a requirement of the two-stage dividend growth model?

An increase in the retention ratio will:

Art Supplies has a net income of $138,600.The firm has $1.25 million in assets and $500,000 in liabilities.What is the return on equity?

A firm has net income of $198,500 and total equity of 1.15 million.There are 220,000 shares of stock outstanding at a price per share of $14.80.What is the firm's price-earnings ratio?

Knit 'n Needle started paying dividends 4 years ago.The annual dividends thus far have been $0.35,$0.38,$0.42,and $0.48,respectively.What is the arithmetic average dividend growth rate?

The Free Cash Flow Model: I.can be used to value a company with negative earnings. II)is based on a firm having positive cash flows. III)requires that a firm pay a dividend. IV)directly estimates a value for a firm's equity

The Shoe Box will not pay a dividend for the next two years.The following two years,it will pay annual dividends of $1 per share.Starting in year 5,the dividends will increase by 4 percent annually.The discount rate is 8 percent.What is the value of this stock today?

The common stock of JL Recyclers has a required return of 12 percent and a current value of $18.72.The company pays its dividend annually and increases the amount by 4 percent each year.You own 300 shares of this stock.What was the total amount of the last dividend you received?

An analysis of which of the following are commonly included as part of fundamental analysis? I.sales II.book value III.earnings per share IV.cash flow

What is the market value of a share of stock divided by the net income per share called?

Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now.The firm's liquidation plan calls for annual dividends of $3,$6,and $36 over the next 3 years,respectively.What is the current value of this stock given a discount rate of 14 percent?

Over the past 4 years,a local firm has paid annual dividends of $1.52,$1.55,$1.60,and $1.68.What is the arithmetic average dividend growth rate?

Miller's Farm has 120,000 shares of stock outstanding,sales of $850,000,and net income of $55,000.Financial analysts believe the price-earnings ratio for this firm should be 15.8.Given this information,what should be the current stock price?

Over the past 5 years,DL Insulation has paid annual dividends of $1.40,$1.55,$1.70,$1.73,and $1.77 per share.What is the geometric average dividend growth rate for this period?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 6: Common Stock Valuation

What is the percentage of a firm's earnings that is distributed to shareholders called?

A firm has paid annual dividends of $1.41,$1.43,$1.55,$1.62,$1.64,and $1.68 per share over the past 6 years,respectively.What is the geometric average growth rate for these dividends?

Which one of the following is a requirement of the two-stage dividend growth model?

An increase in the retention ratio will:

Art Supplies has a net income of $138,600.The firm has $1.25 million in assets and $500,000 in liabilities.What is the return on equity?

A firm has net income of $198,500 and total equity of 1.15 million.There are 220,000 shares of stock outstanding at a price per share of $14.80.What is the firm's price-earnings ratio?

Knit 'n Needle started paying dividends 4 years ago.The annual dividends thus far have been $0.35,$0.38,$0.42,and $0.48,respectively.What is the arithmetic average dividend growth rate?

The Free Cash Flow Model: I.can be used to value a company with negative earnings. II)is based on a firm having positive cash flows. III)requires that a firm pay a dividend. IV)directly estimates a value for a firm's equity

The Shoe Box will not pay a dividend for the next two years.The following two years,it will pay annual dividends of $1 per share.Starting in year 5,the dividends will increase by 4 percent annually.The discount rate is 8 percent.What is the value of this stock today?

The common stock of JL Recyclers has a required return of 12 percent and a current value of $18.72.The company pays its dividend annually and increases the amount by 4 percent each year.You own 300 shares of this stock.What was the total amount of the last dividend you received?

An analysis of which of the following are commonly included as part of fundamental analysis? I.sales II.book value III.earnings per share IV.cash flow

What is the market value of a share of stock divided by the net income per share called?

Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now.The firm's liquidation plan calls for annual dividends of $3,$6,and $36 over the next 3 years,respectively.What is the current value of this stock given a discount rate of 14 percent?

Over the past 4 years,a local firm has paid annual dividends of $1.52,$1.55,$1.60,and $1.68.What is the arithmetic average dividend growth rate?

Miller's Farm has 120,000 shares of stock outstanding,sales of $850,000,and net income of $55,000.Financial analysts believe the price-earnings ratio for this firm should be 15.8.Given this information,what should be the current stock price?

Over the past 5 years,DL Insulation has paid annual dividends of $1.40,$1.55,$1.70,$1.73,and $1.77 per share.What is the geometric average dividend growth rate for this period?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters