Question 1

Home Interiors has net income of $248,000.The firm has decided to pay $160,000 of that income out to the shareholders.What is the firm's retention ratio?

Accepted Answer

A) .355 
B) .412 
C) .450 
D) .588 
E) .645 
A) .355 
B) .412 
C) .450 
D) .588 
E) .645

Question 2

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 3

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 4

Dennison Mfg.pays annual dividends.For the past six years,the firm has paid dividends of $1.10,$1.12,$1.25,$1.28,$1.30,and $1.40,respectively.What is the geometric average dividend growth rate for this time period?

Accepted Answer

A) 3.51 percent 
B) 4.10 percent 
C) 4.94 percent 
D) 5.07 percent 
E) 6.03 percent 
A) 3.51 percent 
B) 4.10 percent 
C) 4.94 percent 
D) 5.07 percent 
E) 6.03 percent

Question 5

Newcomer Mills is a relatively new firm which will retain all of its earnings for the next four years.Four years from now,the firm expects to pay its first dividend of $0.25 a share.After that,it intends to increase the dividend by 4 percent annually.What is the value of this stock today at a discount rate of 12 percent?

Accepted Answer

A) $1.53 
B) $1.78 
C) $2.04 
D) $2.22 
E) $2.60 
A) $1.53 
B) $1.78 
C) $2.04 
D) $2.22 
E) $2.60

Question 6

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 7

The price-sales ratio helps measure the ability of a firm to generate:

Accepted Answer

A) net profits. 
B) quality cash flows. 
C) higher earnings per share. 
D) higher cash flow per share. 
E) revenue growth. 
A) net profits. 
B) quality cash flows. 
C) higher earnings per share. 
D) higher cash flow per share. 
E) revenue growth.

Question 8

Periscope Adventures last annual dividend was $0.63 a share.The firm will increase the dividend by 7 percent for the next 4 years and thereafter increase the dividend by 4 percent annually.What is this stock worth today if the required return is 11 percent?

Accepted Answer

A) $10.38 
B) $11.06 
C) $11.30 
D) $13.97 
E) $14.08 
A) $10.38 
B) $11.06 
C) $11.30 
D) $13.97 
E) $14.08

Question 9

The net income per share divided by the market price per share is called the:

Accepted Answer

A) profit margin. 
B) profit yield. 
C) market yield. 
D) earnings yield. 
E) income ratio. 
A) profit margin. 
B) profit yield. 
C) market yield. 
D) earnings yield. 
E) income ratio.

Question 10

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 11

Which one of the following is a correct formula for computing a geometric average dividend growth rate?

Accepted Answer

A) [(1 + D0) + (1 + D1) × (1 + DN)]N + 1 - 1 
B) [(1 + D0) × (1 + D1) × (1 + DN)]N - 1 - 1 
C) [DN/D0]1/N - 1 
D) [D0/DN]N - 1 
E) [DN/D0]N/1 - 1 
A) [(1 + D0) + (1 + D1) × (1 + DN)]N + 1 - 1 
B) [(1 + D0) × (1 + D1) × (1 + DN)]N - 1 - 1 
C) [DN/D0]1/N - 1 
D) [D0/DN]N - 1 
E) [DN/D0]N/1 - 1

Question 12

Wilkinson and Daughters has net income of $415,400,total assets of $2.2 million,and total liabilities of $1.08 million.The company paid $270,000 in dividends.What is the firm's sustainable rate of growth?

Accepted Answer

A) 9.69 percent 
B) 11.06 percent 
C) 12.98 percent 
D) 13.93 percent 
E) 14.15 percent 
A) 9.69 percent 
B) 11.06 percent 
C) 12.98 percent 
D) 13.93 percent 
E) 14.15 percent

Question 13

The dividend discount model assumes that:

Accepted Answer

A) the dividend payout ratio will remain constant. 
B) the dividend growth rate is equal to the discount rate. 
C) discount rate increases at a constant rate. 
D) at least one dividend will be paid in the future. 
E) the dividend payout ratio increases at a constant rate. 
A) the dividend payout ratio will remain constant. 
B) the dividend growth rate is equal to the discount rate. 
C) discount rate increases at a constant rate. 
D) at least one dividend will be paid in the future. 
E) the dividend payout ratio increases at a constant rate.

Question 14

The method of valuing a stock based on the present value of the future income derived from that stock is called:

Accepted Answer

A) technical analysis. 
B) constant valuation. 
C) the basic stock valuation method. 
D) compound dividend analysis. 
E) the dividend discount model. 
A) technical analysis. 
B) constant valuation. 
C) the basic stock valuation method. 
D) compound dividend analysis. 
E) the dividend discount model.

Question 15

The price-book ratio is computed as the market value per share divided by the per share book value of:

Accepted Answer

A) total assets. 
B) long-term debt. 
C) equity. 
D) long-term debt plus equity. 
E) net working capital. 
A) total assets. 
B) long-term debt. 
C) equity. 
D) long-term debt plus equity. 
E) net working capital.

Question 16

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?

Accepted Answer

A) $12.63 
B) $12.95 
C) $13.05 
D) $13.37 
E) $13.72 
A) $12.63 
B) $12.95 
C) $13.05 
D) $13.37 
E) $13.72

Question 17

A firm has a current book value per share of $21.10 and a market price per share of $37.57.Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent.What is the required rate of return on this stock?

Accepted Answer

A) 14 percent 
B) 15 percent 
C) 16 percent 
D) 17 percent 
E) 18 percent 
A) 14 percent 
B) 15 percent 
C) 16 percent 
D) 17 percent 
E) 18 percent

Question 18

Wilson's Furniture is experiencing good growth so has decided to commence paying dividends starting next year.The first dividend will be $0.50 a share with annual increases of 4 percent in the dividend amount.The discount rate is 10 percent.What will the value of this stock be four years from now?

Accepted Answer

A) $8.50 
B) $8.72 
C) $9.03 
D) $9.23 
E) $9.75 
A) $8.50 
B) $8.72 
C) $9.03 
D) $9.23 
E) $9.75

Question 19

You are considering buying shares of stock in the Steel Mill.The forecast for the firm is steady growth over the next decade.The firm just paid its annual dividend of $1.42 per share and has plans to increase that amount by 4 percent annually indefinitely.You require a 12.5 percent return on this type of security.What is your estimate of the value of this stock ten years from now?

Accepted Answer

A) $24.13 
B) $24.38 
C) $24.73 
D) $25.06 
E) $25.72 
A) $24.13 
B) $24.38 
C) $24.73 
D) $25.06 
E) $25.72

Question 20

A firm's current stock price divided by the firm's revenue per share is referred to as which one of the following ratios?

Accepted Answer

A) price-earnings 
B) price-book 
C) price-income 
D) price-sales 
E) price-cash flow 
A) price-earnings 
B) price-book 
C) price-income 
D) price-sales 
E) price-cash flow

Home Interiors has net income of $248,000.The firm has decided to pay $160,000 of that income out to the shareholders.What is the firm's retention ratio?

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?

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

Dennison Mfg.pays annual dividends.For the past six years,the firm has paid dividends of $1.10,$1.12,$1.25,$1.28,$1.30,and $1.40,respectively.What is the geometric average dividend growth rate for this time period?

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

The price-sales ratio helps measure the ability of a firm to generate:

Periscope Adventures last annual dividend was $0.63 a share.The firm will increase the dividend by 7 percent for the next 4 years and thereafter increase the dividend by 4 percent annually.What is this stock worth today if the required return is 11 percent?

The net income per share divided by the market price per share is called the:

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?

Which one of the following is a correct formula for computing a geometric average dividend growth rate?

Wilkinson and Daughters has net income of $415,400,total assets of $2.2 million,and total liabilities of $1.08 million.The company paid $270,000 in dividends.What is the firm's sustainable rate of growth?

The dividend discount model assumes that:

The method of valuing a stock based on the present value of the future income derived from that stock is called:

The price-book ratio is computed as the market value per share divided by the per share book value of:

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?

A firm has a current book value per share of $21.10 and a market price per share of $37.57.Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent.What is the required rate of return on this stock?

Wilson's Furniture is experiencing good growth so has decided to commence paying dividends starting next year.The first dividend will be $0.50 a share with annual increases of 4 percent in the dividend amount.The discount rate is 10 percent.What will the value of this stock be four years from now?

A firm's current stock price divided by the firm's revenue per share is referred to as which one of the following ratios?

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

Home Interiors has net income of $248,000.The firm has decided to pay $160,000 of that income out to the shareholders.What is the firm's retention ratio?

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?

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

Dennison Mfg.pays annual dividends.For the past six years,the firm has paid dividends of $1.10,$1.12,$1.25,$1.28,$1.30,and $1.40,respectively.What is the geometric average dividend growth rate for this time period?

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

The price-sales ratio helps measure the ability of a firm to generate:

Periscope Adventures last annual dividend was $0.63 a share.The firm will increase the dividend by 7 percent for the next 4 years and thereafter increase the dividend by 4 percent annually.What is this stock worth today if the required return is 11 percent?

The net income per share divided by the market price per share is called the:

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?

Which one of the following is a correct formula for computing a geometric average dividend growth rate?

Wilkinson and Daughters has net income of $415,400,total assets of $2.2 million,and total liabilities of $1.08 million.The company paid $270,000 in dividends.What is the firm's sustainable rate of growth?

The dividend discount model assumes that:

The method of valuing a stock based on the present value of the future income derived from that stock is called:

The price-book ratio is computed as the market value per share divided by the per share book value of:

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?

A firm has a current book value per share of $21.10 and a market price per share of $37.57.Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent.What is the required rate of return on this stock?

Wilson's Furniture is experiencing good growth so has decided to commence paying dividends starting next year.The first dividend will be $0.50 a share with annual increases of 4 percent in the dividend amount.The discount rate is 10 percent.What will the value of this stock be four years from now?

A firm's current stock price divided by the firm's revenue per share is referred to as which one of the following ratios?

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