Question 1

The rate at which a stock's price is expected to appreciate (or depreciate)is called the ________ yield.

Accepted Answer

A) current 
B) total 
C) dividend 
D) capital gains 
E) earnings 
A) current 
B) total 
C) dividend 
D) capital gains 
E) earnings

Question 2

Which one of these applies to the dividend growth model of stock valuation?

Accepted Answer

A) The dividend must be for the same time period as the stock price. 
B) The growth rate must be less than the discount rate. 
C) The rate of growth must be positive. 
D) The model cannot be applied if the growth rate is zero. 
E) The dividend amount must be constant over time. 
A) The dividend must be for the same time period as the stock price. 
B) The growth rate must be less than the discount rate. 
C) The rate of growth must be positive. 
D) The model cannot be applied if the growth rate is zero. 
E) The dividend amount must be constant over time.

Question 3

A company plans to pay an annual dividend of $.30 a share for two years commencing two years from today.After that time,a constant $1 a share annual dividend is planned indefinitely.Given a required return of 14 percent,what is the current value of this stock?

Accepted Answer

A) $4.82 
B) $5.25 
C) $5.39 
D) $5.46 
E) $5.58 
A) $4.82 
B) $5.25 
C) $5.39 
D) $5.46 
E) $5.58

Question 4

Rudy's stock is currently valued at $28.40 a share.The firm had earnings per share of $1.86 last year and projects earnings of $2.09 a share for next year.What is the trailing twelve month price-earnings ratio?

Accepted Answer

A) 13.59 
B) 14.38 
C) 12.84 
D) 16.67 
E) 15.27 
A) 13.59 
B) 14.38 
C) 12.84 
D) 16.67 
E) 15.27

Question 5

Wilbert's Clothing Stores just paid an annual dividend of $1.20 and increases its dividend by 2.5 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 three years.If you desire a rate of return of 10 percent,how much should you expect to pay for 100 shares when you can afford to buy this stock? Ignore trading costs.

Accepted Answer

A) $1,640 
B) $1,681 
C) $1,723 
D) $1,766 
E) $1,810 
A) $1,640 
B) $1,681 
C) $1,723 
D) $1,766 
E) $1,810

Question 6

The differential growth model of stock valuation:

Accepted Answer

A) makes allowance for one change in the discount rate. 
B) uses DT + 1 as the dividend amount throughout the formula. 
C) requires g2 to be less than the discount rate. 
D) assumes the second growth rate will be zero. 
E) assumes the first growth rate will be zero. 
A) makes allowance for one change in the discount rate. 
B) uses DT + 1 as the dividend amount throughout the formula. 
C) requires g2 to be less than the discount rate. 
D) assumes the second growth rate will be zero. 
E) assumes the first growth rate will be zero.

Question 7

One advantage of the EV/EBITDA ratio over the PE ratio is the:

Accepted Answer

A) inclusion of depreciation charges. 
B) increased reliance on leverage. 
C) averaging of annual sales. 
D) inclusion of all the firm's cash reserves. 
E) lessened impact of leverage on the ratio. 
A) inclusion of depreciation charges. 
B) increased reliance on leverage. 
C) averaging of annual sales. 
D) inclusion of all the firm's cash reserves. 
E) lessened impact of leverage on the ratio.

Question 8

Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond,and explain why.

Accepted Answer

Bonds,unlike stocks,have a final maturit

Question 9

New Corp.just paid a per share annual dividend of $1.50.The company is planning on paying $1.62,$1.68,$1.75,and $1.80 a share over the next four years,respectively.After that the dividend will be a constant $2.00 per share per year.What is the market price of this stock if the market rate of return is 15 percent?

Accepted Answer

A) $6.00 
B) $8.49 
C) $12.48 
D) $11.57 
E) $9.09 
A) $6.00 
B) $8.49 
C) $12.48 
D) $11.57 
E) $9.09

Question 10

M&D Enterprises paid its first annual dividend yesterday in the amount of $.28 a share.The company plans to double each annual dividend payment for the next three years.After that time,it plans to pay a constant $2.25 per share indefinitely.What is one share of this stock worth today if the market rate of return on similar securities is 11.5 percent?

Accepted Answer

A) $19.41 
B) $18.40 
C) $17.46 
D) $16.93 
E) $17.13 
A) $19.41 
B) $18.40 
C) $17.46 
D) $16.93 
E) $17.13

Question 11

The Felix Corp.will pay an annual dividend of $1.00 next year.The dividend will increase by 12 percent a year for the following two years before growing at 4 percent indefinitely thereafter.If the required rate of return is 10 percent,what is the stock's current value?

Accepted Answer

A) $13.38 
B) $14.05 
C) $19.11 
D) $9.80 
E) $10.38 
A) $13.38 
B) $14.05 
C) $19.11 
D) $9.80 
E) $10.38

Question 12

Alpha Industries is going to pay annual dividends of $.35,$.50,and $.80 a share over the next three years,respectively.After that,the dividend will be $1.25 per share indefinitely.What is this stock worth today at a discount rate of 13.45 percent?

Accepted Answer

A) $6.20 
B) $9.48 
C) $10.88 
D) $7.61 
E) $5.06 
A) $6.20 
B) $9.48 
C) $10.88 
D) $7.61 
E) $5.06

Question 13

Rosita's announced that its next annual dividend will be $1.65 a share and all future dividends will increase by 2.5 percent annually.What is the maximum amount you should pay to purchase a share of this stock if you require a rate of return of 12 percent?

Accepted Answer

A) $13.75 
B) $17.80 
C) $15.46 
D) $16.94 
E) $17.37 
A) $13.75 
B) $17.80 
C) $15.46 
D) $16.94 
E) $17.37

Question 14

Nu-Tech is expecting a period of intense growth and has decided to reduce its annual dividend by 10 percent a year for the next two years.After that,it will maintain a constant dividend of $.70 a share.The company just paid $1.80 per share.What is the value of this stock if the required rate of return is 13 percent?

Accepted Answer

A) $6.99 
B) $6.79 
C) $8.22 
D) $8.87 
E) $7.62 
A) $6.99 
B) $6.79 
C) $8.22 
D) $8.87 
E) $7.62

Question 15

A stop order to sell at $46 will be executed:

Accepted Answer

A) at a price of $46 at the end of the day on which the order was placed. 
B) at $46 following the first trade with a price below $46. 
C) as a market order once a trade occurs at a price of $46 or less. 
D) immediately at a price of $46. 
E) as a market order once a trade occurs at a price of $46 or higher. 
A) at a price of $46 at the end of the day on which the order was placed. 
B) at $46 following the first trade with a price below $46. 
C) as a market order once a trade occurs at a price of $46 or less. 
D) immediately at a price of $46. 
E) as a market order once a trade occurs at a price of $46 or higher.

Question 16

Logistics just paid an annual dividend of $2.20 and announced that all future dividends would be $2.25 a share indefinitely.What is your required rate of return if you are willing to pay $15.25 a share for this stock?

Accepted Answer

A) 14.75 percent 
B) 16.07 percent 
C) 13.88 percent 
D) 13.67 percent 
E) 14.50 percent 
A) 14.75 percent 
B) 16.07 percent 
C) 13.88 percent 
D) 13.67 percent 
E) 14.50 percent

Question 17

Engine Builders stock sells for $24.20 a share.The firm just paid an annual dividend of $2 per share and has a long-established record of increasing its dividend by a constant 2.5 percent annually.What is the market rate of return on this stock?

Accepted Answer

A) 10.97 percent 
B) 14.41 percent 
C) 10.70 percent 
D) 12.34 percent 
E) 11.46 percent 
A) 10.97 percent 
B) 14.41 percent 
C) 10.70 percent 
D) 12.34 percent 
E) 11.46 percent

Question 18

Martin's Yachts is expected to pay annual dividends of $1.40,$1.75,and $2.00 a share over the next three years,respectively.After that,the dividend is expected to remain constant.What is the current value per share at a discount rate of 14 percent?

Accepted Answer

A) $12.22 
B) $13.57 
C) $13.08 
D) $12.82 
E) $13.39 
A) $12.22 
B) $13.57 
C) $13.08 
D) $12.82 
E) $13.39

Question 19

Phillips Co.currently pays no dividend.The company is anticipating dividends of $.02,$.05,$.10,$.20,and $.30 over the next 5 years,respectively.After that,the company anticipates increasing the dividend by 3.5 percent annually.One common step in computing the value of this stock today is to compute the value of:

Accepted Answer

A) P1. 
B) P3. 
C) P4. 
D) P5. 
E) P6. 
A) P1. 
B) P3. 
C) P4. 
D) P5. 
E) P6.

Question 20

Martha's recently paid an annual dividend of $3.60 on its common stock.This dividend increases by 2.5 percent per year.What is the market rate of return if the stock is selling for $32.65 a share?

Accepted Answer

A) 12.57 percent 
B) 13.45 percent 
C) 15.55 percent 
D) 16.05 percent 
E) 13.80 percent 
A) 12.57 percent 
B) 13.45 percent 
C) 15.55 percent 
D) 16.05 percent 
E) 13.80 percent

Exam 9: Stock Valuation

The rate at which a stock's price is expected to appreciate (or depreciate)is called the ________ yield.

Which one of these applies to the dividend growth model of stock valuation?

A company plans to pay an annual dividend of $.30 a share for two years commencing two years from today.After that time,a constant $1 a share annual dividend is planned indefinitely.Given a required return of 14 percent,what is the current value of this stock?

Rudy's stock is currently valued at $28.40 a share.The firm had earnings per share of $1.86 last year and projects earnings of $2.09 a share for next year.What is the trailing twelve month price-earnings ratio?

The differential growth model of stock valuation:

One advantage of the EV/EBITDA ratio over the PE ratio is the:

Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond,and explain why.

The Felix Corp.will pay an annual dividend of $1.00 next year.The dividend will increase by 12 percent a year for the following two years before growing at 4 percent indefinitely thereafter.If the required rate of return is 10 percent,what is the stock's current value?

Alpha Industries is going to pay annual dividends of $.35,$.50,and $.80 a share over the next three years,respectively.After that,the dividend will be $1.25 per share indefinitely.What is this stock worth today at a discount rate of 13.45 percent?

Rosita's announced that its next annual dividend will be $1.65 a share and all future dividends will increase by 2.5 percent annually.What is the maximum amount you should pay to purchase a share of this stock if you require a rate of return of 12 percent?

A stop order to sell at $46 will be executed:

Logistics just paid an annual dividend of $2.20 and announced that all future dividends would be $2.25 a share indefinitely.What is your required rate of return if you are willing to pay $15.25 a share for this stock?

Engine Builders stock sells for $24.20 a share.The firm just paid an annual dividend of $2 per share and has a long-established record of increasing its dividend by a constant 2.5 percent annually.What is the market rate of return on this stock?

Martin's Yachts is expected to pay annual dividends of $1.40,$1.75,and $2.00 a share over the next three years,respectively.After that,the dividend is expected to remain constant.What is the current value per share at a discount rate of 14 percent?

Martha's recently paid an annual dividend of $3.60 on its common stock.This dividend increases by 2.5 percent per year.What is the market rate of return if the stock is selling for $32.65 a share?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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