Exam 8: The Valuation and Characteristics of Stock

Many preferred stocks have a feature that requires a firm to periodically set aside an amount of money for the retirement of its preferred stock.What is the name of this feature?

If you expect NoDiv Corporation to sell for $75 per share in three years while paying no dividends along the way,and if your required rate of return is 16% per year,how much is the stock worth today?

Preferred stock is riskier than long-term debt because its claim on assets and income come after those of bonds.

Although under normal operating conditions preferred shareholders do not have voting rights,protective provision generally allow for voting rights in the event of nonpayment of preferred dividends.

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?

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 Western State Company's common stock is expected to pay a $2.00 dividend in the coming year.If investors require a 17% return and the growth rate in dividends is expected to be 8%,what will the market price of the stock be?

Many preferred stocks have a provision that entitles a company to repurchase its preferred stock from their holders at stated prices over a given time period.What is the name of this provision?

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.

Distant Thunder,Inc.paid a dividend of $5.00 per share on its common stock yesterday.Dividends are expected to grow at a constant rate of 10% for the next two years,at which point the dividends will begin to grow at a constant rate indefinitely.If the stock is selling for $50 today and the required return is 15%,what it the expected annual dividend growth rate after year two?

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

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

A common stock with an expected dividend growth rate of zero would be valued in the same way as preferred stock,that is,the expected dividend divided by the required return.

Bevel Building Products,Inc.,whose common stock is currently selling for $12 per share,is expected to pay a $1.80 dividend,and sell for $14.40 one year from now.What are the dividend yield,growth rate,and total rate of return,respectively?

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.

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

If a shareholder cannot attend the corporation's annual meeting,the shares may still be voted using

Miller's preferred stock is selling at $54 on the market and pays an annual dividend of $4.20 per share. a.What is the expected rate of return on the stock? b.If an investor's required rate of return is 9%,what is the value of the stock to that investor? c.Considering the investor's required rate of return,does this stock seem to be a desirable investment?

LTM,Inc.has an issue of preferred stock whose par value is $1,000.The preferred stock pays a 4.5% dividend.If investors require a 5.5% rate of return for these shares,what price should the preferred stock sell for?

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.