Exam 8: The Valuation and Characteristics of Stock

You are considering the purchase of Zee Company stock.You anticipate that the company will pay dividends of $3.50 per share next year and $4.00 per share the following year.You believe that you can sell the stock for $20.00 per share two years from now.If your required rate of return is 10 percent,what is the maximum price that you would pay for a share of Zee Company stock?

A call provision entitles a company to repurchase its preferred stock from holders at stated prices over a given time period.

An investor's required rate of return for a common stock can be estimated by summing the stock's dividend yield and annual growth rate,assuming the growth rate is constant over time.

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.

ABC Corp 5% preferred stock with a par value of $100 and a market price of $125 will pay an annual dividend this year of $12 per share.

Bacon Signs Company preferred stock pays a perpetual annual dividend of 4.5% of its $100 par value.If investors' required rate of return on this stock is 12%,what is the value per share?

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)?

The price of DDS Corporation stock is expected to be $45 in 5 years.Dividends are anticipated to increase at an annual rate of 10 percent from the most recent dividend of $1.00.If your required rate of return is 15 percent,how much are you willing to pay for DDS stock?

Maynard Inc.preferred stock pays an annual dividend of $7 per share.Which of the following statements is true for an investor with a required return of 9%?

Diana Ltd.paid a $2.50 per share dividend yesterday.The dividend is expected to grow at 10 percent per year for the foreseeable future.Diana Ltd.has a beta of 1.6,a standard deviation of returns of 30 percent,and a required return of 18%.What is the value of a share of Diana Ltd.common stock?

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

You are considering the purchase of a share of Ranch's common stock.You expect to sell it at the end of 1 year for $32.00.You will also receive a dividend of $2.50 at the end of the year.Ranch just paid a dividend of $2.25.If your required return on this stock is 12%,what is the most you would be willing to pay for it now?

TellTrue Corporation has preferred stock which paid an annual dividend in 2009 of $5 per share.TellTrue also has common stock which paid a dividend in 2009 of $5.Which of the following statements is MOST correct concerning TellTrue stock?

For a given constant required rate of return,the greatest portion of a preferred stockholder's return comes from increases in the price of preferred stock.

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

A small company struggling to reach profitability just announced a major new government contract that will validate its technology and generate revenue for the next several years.The announcement of the contract will

Perrine Industrial Inc.just paid a dividend of $5 per share.Future dividends are expected to grow at a constant rate of 7% per year.What is the value of the stock if the required return is 16%?

Lithium Lakes Industries preferred stock has a par value of $100 and pays a dividend of $6.00 per share.It presently sells for $87 per share.What do investors require as a rate of return on this stock? Round off to the nearest .10%.

Shareholders,as owners of the corporation,face unlimited liability for the corporation's debts,while bondholders,as creditors,may only lose the value of their investment if the company goes bankrupt.