Question 1

Inside quotes on a stock are:

Accepted Answer

A) the prices available only to corporate insiders. 
B) prices obtained only on the actual floor of an exchange. 
C) prices available only to stock market employees. 
D) the lowest asked quote and the highest bid quote. 
E) prices paid that lie between yesterday's closing price and today's closing price. 
A) the prices available only to corporate insiders. 
B) prices obtained only on the actual floor of an exchange. 
C) prices available only to stock market employees. 
D) the lowest asked quote and the highest bid quote. 
E) prices paid that lie between yesterday's closing price and today's closing price.

Question 2

A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms.How is this possible? Does this violate our basic principle of stock valuation? Explain.

Accepted Answer

Our basic principle of stock valuation i

Question 3

City Movers announced its next annual dividend will be $.40 a share.The following dividends will be $.60,and $.75 a share annually for the following two years,respectively.After that,dividends are projected to increase by 3.5 percent per year.How much is one share of this stock worth at a rate of return of 12 percent?

Accepted Answer

A) $8.45 
B) $6.84 
C) $7.87 
D) $8.06 
E) $7.03 
A) $8.45 
B) $6.84 
C) $7.87 
D) $8.06 
E) $7.03

Question 4

Shares of the Samson Co.offer an expected total return of 12 percent.The dividend is increasing at a constant 3.25 percent per year.What is the value of the next dividend if the stock is selling at $28 a share?

Accepted Answer

A) $2.50 
B) $2.45 
C) $2.78 
D) $2.34 
E) $2.10 
A) $2.50 
B) $2.45 
C) $2.78 
D) $2.34 
E) $2.10

Question 5

The Bell Weather Co.is a new firm in a rapidly growing industry.The company is planning on increasing its annual dividend by 20 percent next year and then decreasing the growth rate to a constant 5 percent per year.The company just paid its annual dividend in the amount of $1 per share.What is the current value of a share if the required rate of return is 14 percent?

Accepted Answer

A) $13.28 
B) $13.42 
C) $13.33 
D) $13.19 
E) $13.24 
A) $13.28 
B) $13.42 
C) $13.33 
D) $13.19 
E) $13.24

Question 6

Which one of these statements is correct?

Accepted Answer

A) Investors earn a return called a spread. 
B) Dealers pay a fee,called the spread,to brokers. 
C) Investors sell at the ask price. 
D) Dealers buy at the bid price. 
E) Brokers maintain an inventory of securities. 
A) Investors earn a return called a spread. 
B) Dealers pay a fee,called the spread,to brokers. 
C) Investors sell at the ask price. 
D) Dealers buy at the bid price. 
E) Brokers maintain an inventory of securities.

Question 7

A stock that is considered to be low risk is most apt to have:

Accepted Answer

A) a low PE ratio. 
B) unlimited growth. 
C) a dividend yield of zero. 
D) a high PE ratio. 
E) a growth rate of zero. 
A) a low PE ratio. 
B) unlimited growth. 
C) a dividend yield of zero. 
D) a high PE ratio. 
E) a growth rate of zero.

Question 8

A day order to sell at a limit of $32 will be:

Accepted Answer

A) executed at the next available price once a trade occurs at the limit price. 
B) cancelled at the end of the day if not executed. 
C) executed only if the purchase price is less than the limit amount. 
D) executed at the end-of-day price if $32 has not been obtained. 
E) transferred to a market order on the following day if not executed at the limit price. 
A) executed at the next available price once a trade occurs at the limit price. 
B) cancelled at the end of the day if not executed. 
C) executed only if the purchase price is less than the limit amount. 
D) executed at the end-of-day price if $32 has not been obtained. 
E) transferred to a market order on the following day if not executed at the limit price.

Question 9

Bikes and More just announced its next annual dividend will be $2.42 a share and all future dividends will increase by 2.5 percent annually.What is the market rate of return if this stock is currently selling for $22 a share?

Accepted Answer

A) 13.62 percent 
B) 13.84 percent 
C) 13.58 percent 
D) 13.50 percent 
E) 13.46 percent 
A) 13.62 percent 
B) 13.84 percent 
C) 13.58 percent 
D) 13.50 percent 
E) 13.46 percent

Question 10

The common stock of Energy Saver pays an annual dividend that is expected to increase by 4 percent annually.The stock commands a market rate of return of 12 percent and sells for $58.25 a share.What is the expected amount of the next dividend to be paid?

Accepted Answer

A) $4.87 
B) $5.02 
C) $5.10 
D) $4.66 
E) $4.33 
A) $4.87 
B) $5.02 
C) $5.10 
D) $4.66 
E) $4.33

Question 11

MJ Enterprises stock traditionally provides an average rate of return of 11.6 percent.The firm's next annual dividend is projected at $2.40 with future increases of 3 percent per year.What price should you pay for this stock if you are satisfied with the firm's average rate of return?

Accepted Answer

A) $28.74 
B) $22.50 
C) $27.91 
D) $28.89 
E) $21.31 
A) $28.74 
B) $22.50 
C) $27.91 
D) $28.89 
E) $21.31

Question 12

JK Inc.is a very cyclical type of business which is reflected in its dividend policy.The firm pays a dividend of $2.00 a share every other year with the last payment having just been paid.Five years from now,the company is repurchasing all of the outstanding shares at a price of $50 a share.What is the current value of one share at a discount rate of 12 percent?

Accepted Answer

A) $34.03 
B) $31.24 
C) $33.78 
D) $27.89 
E) $34.99 
A) $34.03 
B) $31.24 
C) $33.78 
D) $27.89 
E) $34.99

Question 13

If the issuer of a stock receives the proceeds from a sale of that issuer's stock,then the sale:

Accepted Answer

A) had to have occurred on the floor of an exchange. 
B) was a secondary market transaction. 
C) was transacted on the NYSE. 
D) was conducted in the primary market. 
E) had to have been a limit order. 
A) had to have occurred on the floor of an exchange. 
B) was a secondary market transaction. 
C) was transacted on the NYSE. 
D) was conducted in the primary market. 
E) had to have been a limit order.

Question 14

Lester's has a return on equity of 11.6 percent,a profit margin of 6.2 percent,and a payout ratio of 35 percent.What is the firm's growth rate?

Accepted Answer

A) 13.74 percent 
B) 7.54 percent 
C) 11.09 percent 
D) 8.77 percent 
E) 9.71 percent 
A) 13.74 percent 
B) 7.54 percent 
C) 11.09 percent 
D) 8.77 percent 
E) 9.71 percent

Question 15

A company just paid an annual dividend of $.40 a share and plans to increase the dividend by 7 percent a year for the next 6 years and then increase it by 4 percent annually thereafter.What is the value of this stock at the end of Year 6 if the discount rate is 11 percent?

Accepted Answer

A) $10.63 
B) $8.92 
C) $9.68 
D) $10.21 
E) $9.37 
A) $10.63 
B) $8.92 
C) $9.68 
D) $10.21 
E) $9.37

Question 16

Which one of these factors generally has the greatest impact on a firm's PE ratio?

Accepted Answer

A) Required rate of return 
B) Current dividends 
C) Future opportunities 
D) The overall risk level of the current firm 
E) Depreciation method used by the firm 
A) Required rate of return 
B) Current dividends 
C) Future opportunities 
D) The overall risk level of the current firm 
E) Depreciation method used by the firm

Question 17

The underlying assumption of the dividend growth model is that a stock is worth:

Accepted Answer

A) the same amount to every investor regardless of their desired rate of return. 
B) the present value of the future income that the stock is expected to generate. 
C) an amount computed as the next annual dividend divided by the market rate of return. 
D) the same amount as any other stock that pays the same current dividend and has the same required rate of return. 
E) an amount computed as the next annual dividend divided by the required rate of return. 
A) the same amount to every investor regardless of their desired rate of return. 
B) the present value of the future income that the stock is expected to generate. 
C) an amount computed as the next annual dividend divided by the market rate of return. 
D) the same amount as any other stock that pays the same current dividend and has the same required rate of return. 
E) an amount computed as the next annual dividend divided by the required rate of return.

Question 18

Uptown Clothing just paid $1.50 as its annual dividend and increases its dividend by 2.5 percent each year.What will Uptown's stock price be in ten years at a discount rate of 12.25 percent?

Accepted Answer

A) $19.46 
B) $22.08 
C) $20.19 
D) $19.70 
E) $21.50 
A) $19.46 
B) $22.08 
C) $20.19 
D) $19.70 
E) $21.50

Question 19

The Merriweather Co.just announced that it will pay a dividend next year of $1.60.The company will then increase its dividend by 10 percent per year for two years after which it will maintain a constant 2 percent dividend growth rate.What is one share worth today at a required rate of return of 14 percent?

Accepted Answer

A) $21.60 
B) $15.17 
C) $23.14 
D) $23.95 
E) $24.79 
A) $21.60 
B) $15.17 
C) $23.14 
D) $23.95 
E) $24.79

Question 20

S&P Enterprises will pay an annual dividend of $2.08 a share on its common stock next year.The firm just paid a dividend of $2.00 a share and adheres to a constant rate of growth dividend policy.What will one share of S&P common stock be worth ten years from now if the applicable discount rate is 8 percent?

Accepted Answer

A) $71.16 
B) $74.01 
C) $76.97 
D) $80.05 
E) $83.25 
A) $71.16 
B) $74.01 
C) $76.97 
D) $80.05 
E) $83.25

Exam 9: Stock Valuation

Inside quotes on a stock are:

A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms.How is this possible? Does this violate our basic principle of stock valuation? Explain.

Shares of the Samson Co.offer an expected total return of 12 percent.The dividend is increasing at a constant 3.25 percent per year.What is the value of the next dividend if the stock is selling at $28 a share?

Which one of these statements is correct?

A stock that is considered to be low risk is most apt to have:

A day order to sell at a limit of $32 will be:

Bikes and More just announced its next annual dividend will be $2.42 a share and all future dividends will increase by 2.5 percent annually.What is the market rate of return if this stock is currently selling for $22 a share?

The common stock of Energy Saver pays an annual dividend that is expected to increase by 4 percent annually.The stock commands a market rate of return of 12 percent and sells for $58.25 a share.What is the expected amount of the next dividend to be paid?

MJ Enterprises stock traditionally provides an average rate of return of 11.6 percent.The firm's next annual dividend is projected at $2.40 with future increases of 3 percent per year.What price should you pay for this stock if you are satisfied with the firm's average rate of return?

If the issuer of a stock receives the proceeds from a sale of that issuer's stock,then the sale:

Lester's has a return on equity of 11.6 percent,a profit margin of 6.2 percent,and a payout ratio of 35 percent.What is the firm's growth rate?

A company just paid an annual dividend of $.40 a share and plans to increase the dividend by 7 percent a year for the next 6 years and then increase it by 4 percent annually thereafter.What is the value of this stock at the end of Year 6 if the discount rate is 11 percent?

Which one of these factors generally has the greatest impact on a firm's PE ratio?

The underlying assumption of the dividend growth model is that a stock is worth:

Uptown Clothing just paid $1.50 as its annual dividend and increases its dividend by 2.5 percent each year.What will Uptown's stock price be in ten years at a discount rate of 12.25 percent?

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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