Question 1

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Accepted Answer

A) no dividends for 5 years, then increasing dividends forever 
B) $1 per share annual dividend for 2 years, then $1.25 annual dividends forever 
C) decreasing dividends for 6 years followed by one final liquidating dividend payment 
D) dividends payments which increase by 2, 3, and 4 percent respectively for 3 years followed by a constant dividend thereafter 
E) dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter 
A) no dividends for 5 years, then increasing dividends forever 
B) $1 per share annual dividend for 2 years, then $1.25 annual dividends forever 
C) decreasing dividends for 6 years followed by one final liquidating dividend payment 
D) dividends payments which increase by 2, 3, and 4 percent respectively for 3 years followed by a constant dividend thereafter 
E) dividend payments which increase by 10 percent per year for 5 years followed by dividends which increase by 3 percent annually thereafter

Question 2

Free Motion Enterprises paid a $2.20 per share annual dividend last week.Dividends are expected to increase by 3.75 percent annually.What is one share of this stock worth to you today if your required rate of return is 15 percent?

Accepted Answer

A) $19.06 
B) $19.30 
C) $19.56 
D) $20.29 
E) $20.59 
A) $19.06 
B) $19.30 
C) $19.56 
D) $20.29 
E) $20.59

Question 3

A company has two open seats,Seat A and Seat B,on its board of directors.There are 6 candidates vying for these 2 positions.There will be a single election to determine the winner of both open seats.As the owner of 100 shares of stock,you will receive one vote per share for each open seat.You decide to cast all 200 of your votes for a single candidate.What is this type of voting called?

Accepted Answer

A) democratic 
B) cumulative 
C) straight 
D) deferred 
E) proxy 
A) democratic 
B) cumulative 
C) straight 
D) deferred 
E) proxy

Question 4

Hightower Pharmacy just paid a $3.10 annual dividend.The company has a policy of increasing the dividend by 4.2 percent annually.You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another four years.If you require a 16 percent rate of return,how much will you be willing to pay per share for the 100 shares when you can afford to make this investment?

Accepted Answer

A) $31.50 
B) $32.27 
C) $33.12 
D) $33.78 
E) $34.47 
A) $31.50 
B) $32.27 
C) $33.12 
D) $33.78 
E) $34.47

Question 5

Marshall Arts Studios just paid an annual dividend of $1.36 a share.The firm plans to pay annual dividends of $1.50,$1.55,and $1.58 over the next 3 years,respectively.After that time,the dividends will be held constant at $1.70 per share.What is this stock worth today at a 9 percent discount rate?

Accepted Answer

A) $14.08 
B) $14.30 
C) $16.67 
D) $16.79 
E) $18.49 
A) $14.08 
B) $14.30 
C) $16.67 
D) $16.79 
E) $18.49

Question 6

Whistle Stop Trains pays a constant $16 dividend on its stock.The company will maintain this dividend for the next 14 years and will then cease paying dividends forever.What is the current price per share if the required return on this stock is 15 percent?

Accepted Answer

A) $77.78 
B) $82.48 
C) $91.59 
D) $106.67 
E) $112.00 
A) $77.78 
B) $82.48 
C) $91.59 
D) $106.67 
E) $112.00

Question 7

Which one of the following transactions occurs in the primary market?

Accepted Answer

A) purchase of 500 shares of GE stock from a current shareholder 
B) gift of 100 shares of stock to a charitable organization 
C) gift of 200 shares of stock by a mother to her daughter 
D) a purchase of newly issued stock from AT&T 
E) IBM's purchase of GE stock 
A) purchase of 500 shares of GE stock from a current shareholder 
B) gift of 100 shares of stock to a charitable organization 
C) gift of 200 shares of stock by a mother to her daughter 
D) a purchase of newly issued stock from AT&T 
E) IBM's purchase of GE stock

Question 8

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

Accepted Answer

A) broker. 
B) floor trader. 
C) capitalist. 
D) principal. 
E) dealer. 
A) broker. 
B) floor trader. 
C) capitalist. 
D) principal. 
E) dealer.

Question 9

An agent who maintains an inventory from which he or she buys and sells securities is called a:

Accepted Answer

A) broker. 
B) trader. 
C) capitalist. 
D) principal. 
E) dealer. 
A) broker. 
B) trader. 
C) capitalist. 
D) principal. 
E) dealer.

Question 10

Explain why small shareholders should prefer cumulative voting over straight voting.

Accepted Answer

With straight voting,a shareholder must

Question 11

Home Care Providers is paying an annual dividend of $1.10 every other year.The last dividend was paid two years ago.The firm will continue this policy until 3 more dividend payments have been paid.One year after the last dividend normal payment,the company plans to pay a final liquidating dividend of $40 per share.What is the current market value of this stock if the required return is 17 percent?

Accepted Answer

A) $18.92 
B) $20.74 
C) $23.16 
D) $24.14 
E) $24.53 
A) $18.92 
B) $20.74 
C) $23.16 
D) $24.14 
E) $24.53

Question 12

The Blue Marlin is owned by a group of 5 shareholders who all vote independently and who all want personal control over the firm.What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?

Accepted Answer

A) 17 percent 
B) 20 percent plus one vote 
C) 25 percent plus one vote 
D) 50 percent plus one vote 
E) 51 percent 
A) 17 percent 
B) 20 percent plus one vote 
C) 25 percent plus one vote 
D) 50 percent plus one vote 
E) 51 percent

Question 13

Suppose you know a company's stock currently sells for $85 per share and the required return on the stock is 10 percent.You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield.What is the current dividend if it's the company's policy to always maintain a constant growth rate in its dividends?

Accepted Answer

A) $3.18 
B) $4.05 
C) $4.37 
D) $4.50 
E) $4.64 
A) $3.18 
B) $4.05 
C) $4.37 
D) $4.50 
E) $4.64

Question 14

Bechtel Machinery stock currently sells for $65 per share.The market requires a 14 percent return on the firm's stock.The company maintains a constant 8 percent growth rate in dividends.What was the most recent annual dividend per share paid on this stock?

Accepted Answer

A) $3.00 
B) $3.61 
C) $3.67 
D) $3.75 
E) $3.91 
A) $3.00 
B) $3.61 
C) $3.67 
D) $3.75 
E) $3.91

Question 15

Upper Crust Bakers just paid an annual dividend of $3.10 a share and is expected to increase that amount by 4 percent per year.If you are planning to buy 1,000 shares of this stock next year,how much should you expect to pay per share if the market rate of return for this type of security is 12 percent at the time of your purchase?

Accepted Answer

A) $37.33 
B) $38.16 
C) $38.83 
D) $41.91 
E) $42.00 
A) $37.33 
B) $38.16 
C) $38.83 
D) $41.91 
E) $42.00

Question 16

Who owns the NYSE?

Accepted Answer

A) NYSE members 
B) specialists 
C) dealers 
D) floor brokers 
E) shareholders 
A) NYSE members 
B) specialists 
C) dealers 
D) floor brokers 
E) shareholders

Question 17

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?

Accepted Answer

A) senior bond 
B) debenture 
C) warrant 
D) common stock 
E) preferred stock 
A) senior bond 
B) debenture 
C) warrant 
D) common stock 
E) preferred stock

Question 18

You own 600 shares of a NASDAQ listed stock that you wish to sell.Which of the following are options available to you for this purpose?
I.sell the shares to a dealer at the dealer's bid price
II.sell directly to another individual via an ECN
III.offer the shares yourself on NASDAQ via an ECN
IV.have a broker offer the shares for sale on the NYSE

Accepted Answer

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

Question 19

A stock pays a constant annual dividend and sells for $56.10 a share.If the market rate of return on this stock is 12.5 percent,what is the amount of the next annual dividend?

Accepted Answer

A) $5.67 
B) $5.94 
C) $6.21 
D) $6.84 
E) $7.30 
A) $5.67 
B) $5.94 
C) $6.21 
D) $6.84 
E) $7.30

Question 20

Yesteryear Productions pays no dividend at the present time.The company plans to start paying an annual dividend in the amount of $0.40 a share for two years commencing four years from today.After that time,the company plans on paying a constant $0.75 a share annual dividend indefinitely.How much are you willing to pay to buy a share of this stock today if your required return is 11.6 percent?

Accepted Answer

A) $3.78 
B) $4.22 
C) $4.37 
D) $4.71 
E) $4.98 
A) $3.78 
B) $4.22 
C) $4.37 
D) $4.71 
E) $4.98

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Free Motion Enterprises paid a $2.20 per share annual dividend last week.Dividends are expected to increase by 3.75 percent annually.What is one share of this stock worth to you today if your required rate of return is 15 percent?

Marshall Arts Studios just paid an annual dividend of $1.36 a share.The firm plans to pay annual dividends of $1.50,$1.55,and $1.58 over the next 3 years,respectively.After that time,the dividends will be held constant at $1.70 per share.What is this stock worth today at a 9 percent discount rate?

Whistle Stop Trains pays a constant $16 dividend on its stock.The company will maintain this dividend for the next 14 years and will then cease paying dividends forever.What is the current price per share if the required return on this stock is 15 percent?

Which one of the following transactions occurs in the primary market?

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

An agent who maintains an inventory from which he or she buys and sells securities is called a:

Explain why small shareholders should prefer cumulative voting over straight voting.

Bechtel Machinery stock currently sells for $65 per share.The market requires a 14 percent return on the firm's stock.The company maintains a constant 8 percent growth rate in dividends.What was the most recent annual dividend per share paid on this stock?

Who owns the NYSE?

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?

A stock pays a constant annual dividend and sells for $56.10 a share.If the market rate of return on this stock is 12.5 percent,what is the amount of the next annual dividend?

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

Exam 8: Stock Valuation

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Free Motion Enterprises paid a $2.20 per share annual dividend last week.Dividends are expected to increase by 3.75 percent annually.What is one share of this stock worth to you today if your required rate of return is 15 percent?

Marshall Arts Studios just paid an annual dividend of $1.36 a share.The firm plans to pay annual dividends of $1.50,$1.55,and $1.58 over the next 3 years,respectively.After that time,the dividends will be held constant at $1.70 per share.What is this stock worth today at a 9 percent discount rate?

Whistle Stop Trains pays a constant $16 dividend on its stock.The company will maintain this dividend for the next 14 years and will then cease paying dividends forever.What is the current price per share if the required return on this stock is 15 percent?

Which one of the following transactions occurs in the primary market?

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

An agent who maintains an inventory from which he or she buys and sells securities is called a:

Explain why small shareholders should prefer cumulative voting over straight voting.

Bechtel Machinery stock currently sells for $65 per share.The market requires a 14 percent return on the firm's stock.The company maintains a constant 8 percent growth rate in dividends.What was the most recent annual dividend per share paid on this stock?

Who owns the NYSE?

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?

A stock pays a constant annual dividend and sells for $56.10 a share.If the market rate of return on this stock is 12.5 percent,what is the amount of the next annual dividend?

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