Question 1

Forecasting dividends requires forecasting the firm's earnings, dividend payout rate, and future share count.

Accepted Answer

A) True 
 B)False

Question 2

Avril Synchronistics will pay a dividend of $1.20 per share this year. It is expected that this dividend will grow by 3% each year in the future. What will be the current value of a single share of Avril's stock if the firm's equity cost of capital is 16%?

Accepted Answer

A) $6.46 
B) $6.92 
C) $9.23 
D) $10.15 
A) $6.46 
B) $6.92 
C) $9.23 
D) $10.15

Question 3

Use the figure for the question(s)below.  
-The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA)after the close of business on August 22, 2008. What is the difference between the opening and closing price of the stock on this date?

Accepted Answer

A) $0.49 
B) $0.27 
C) $0.24 
D) $0.03 
A) $0.49 
B) $0.27 
C) $0.24 
D) $0.03

Question 4

Stocks that do not pay a dividend must have a value of $0.

Accepted Answer

A) True 
 B)False

Question 5

You placed an order to purchase stock where you specified the maximum price you were willing to pay. This type of order is known as a ________.

Accepted Answer

A) maximum order 
B) limit order 
C) floor order 
D) market order 
A) maximum order 
B) limit order 
C) floor order 
D) market order

Question 6

Luther Industries has a dividend yield of 4.5% and a cost of equity capital of 10%. Luther Industries' dividends are expected to grow at a constant rate indefinitely. The growth rate of Luther's dividends is closest to ________.

Accepted Answer

A) 5.5% 
B) 14.5% 
C) 11.0% 
D) 5.0% 
A) 5.5% 
B) 14.5% 
C) 11.0% 
D) 5.0%

Question 7

You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean's equity cost of capital is 10%, then the price of a share of Bean's stock is closest to ________.

Accepted Answer

A) $24.82 
B) $16.54 
C) $41.36 
D) $66.18 
A) $24.82 
B) $16.54 
C) $41.36 
D) $66.18

Question 8

A "round lot" consists of how many shares?

Accepted Answer

A) 1 
B) 10 
C) 100 
D) 1,000 
A) 1 
B) 10 
C) 100 
D) 1,000

Question 9

Von Bora Corporation (VBC)is expected to pay a $3.00 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBS stock is closest to ________.

Accepted Answer

A) $42.86 
B) $15.79 
C) $25.72 
D) $17.14 
A) $42.86 
B) $15.79 
C) $25.72 
D) $17.14

Question 10

How can the dividend-discount model handle changing growth rates?

Accepted Answer

Most firms have high growth rate during

Question 11

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

Accepted Answer

A) $11.20 
B) $12.80 
C) $16.80 
D) $16.00 
A) $11.20 
B) $12.80 
C) $16.80 
D) $16.00

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) Estimating dividends, especially for the distant future, is difficult. 
B) A firm can only pay out its earnings to investors or reinvest their earnings. 
C) Successful young firms often have high initial earnings growth rates. 
D) According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate. 
A) Estimating dividends, especially for the distant future, is difficult. 
B) A firm can only pay out its earnings to investors or reinvest their earnings. 
C) Successful young firms often have high initial earnings growth rates. 
D) According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate.

Question 13

You expect KT industries (KTI)will have earnings per share of $5 this year and expect that they will pay out $1.25 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 13% and their equity cost of capital is 15%. The expected growth rate for KTI's dividends is closest to ________.

Accepted Answer

A) 11.3% 
B) 9.8% 
C) 5.9% 
D) 3.9% 
A) 11.3% 
B) 9.8% 
C) 5.9% 
D) 3.9%

Question 14

Which of the following will NOT increase a company's dividend payments?

Accepted Answer

A) It can issue more shares. 
B) It can increase its earnings. 
C) It can decrease the number of shares outstanding. 
D) It can increase its dividend payout rate. 
A) It can issue more shares. 
B) It can increase its earnings. 
C) It can decrease the number of shares outstanding. 
D) It can increase its dividend payout rate.

Question 15

What is a major assumption about growth rate in the dividend-discount model?

Accepted Answer

It is assumed that t

Question 16

Rylan Industries is expected to pay a dividend of $5.70 year for the next four years. If the current price of Rylan stock is $31.27, and Rylan's equity cost of capital is 12%, what price would you expect Rylan's stock to sell for at the end of the four years?

Accepted Answer

A) $21.96 
B) $39.53 
C) $17.57 
D) $61.49 
A) $21.96 
B) $39.53 
C) $17.57 
D) $61.49

Question 17

Valorous Corporation will pay a dividend of $1.75 per share at this year's end and a dividend of $2.35 per share at the end of next year. It is expected that the price of Valorous' stock will be $41 per share after two years. If Valorous has an equity cost of capital of 9%, what is the maximum price that a prudent investor would be willing to pay for a share of Valorous stock today?

Accepted Answer

A) $32.38 
B) $36.19 
C) $38.09 
D) $39.99 
A) $32.38 
B) $36.19 
C) $38.09 
D) $39.99

Question 18

Use the figure for the question(s)below.  
-The above screen shot above from Google Finance shows the price history of Progenics, a pharmaceutical company. In the time period shown, Progenics released information that an intravenously-administered formulation of their leading product had failed in a Phase III clinical trial. In which of the months shown in the price history is this most likely to have occurred?

Accepted Answer

A) February 2008 
B) March 2008 
C) April 2008 
D) May 2008 
A) February 2008 
B) March 2008 
C) April 2008 
D) May 2008

Question 19

A stock is expected to pay $1.25 per share every year indefinitely and the equity cost of capital for the company is 8.4%. What price would an investor be expected to pay per share ten years in the future?

Accepted Answer

A) $14.88 
B) $22.32 
C) $29.76 
D) $37.20 
A) $14.88 
B) $22.32 
C) $29.76 
D) $37.20

Question 20

Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah stock is $22.60, and Coolibah's equity cost of capital is 18%, what price would you expect Coolibah's stock to sell for at the end of three years?

Accepted Answer

A) $28.87 
B) $31.76 
C) $33.20 
D) $34.64 
A) $28.87 
B) $31.76 
C) $33.20 
D) $34.64

Exam 7: Stock Valuation

Forecasting dividends requires forecasting the firm's earnings, dividend payout rate, and future share count.

Avril Synchronistics will pay a dividend of $1.20 per share this year. It is expected that this dividend will grow by 3% each year in the future. What will be the current value of a single share of Avril's stock if the firm's equity cost of capital is 16%?

Use the figure for the question(s)below. -The above screen shot from Google Finance shows the basic stock information for Logitech International SA (USA)after the close of business on August 22, 2008. What is the difference between the opening and closing price of the stock on this date?

Stocks that do not pay a dividend must have a value of $0.

You placed an order to purchase stock where you specified the maximum price you were willing to pay. This type of order is known as a ________.

Luther Industries has a dividend yield of 4.5% and a cost of equity capital of 10%. Luther Industries' dividends are expected to grow at a constant rate indefinitely. The growth rate of Luther's dividends is closest to ________.

A "round lot" consists of how many shares?

Von Bora Corporation (VBC)is expected to pay a $3.00 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBS stock is closest to ________.

How can the dividend-discount model handle changing growth rates?

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

Which of the following statements is FALSE?

Which of the following will NOT increase a company's dividend payments?

What is a major assumption about growth rate in the dividend-discount model?

Rylan Industries is expected to pay a dividend of $5.70 year for the next four years. If the current price of Rylan stock is $31.27, and Rylan's equity cost of capital is 12%, what price would you expect Rylan's stock to sell for at the end of the four years?

A stock is expected to pay $1.25 per share every year indefinitely and the equity cost of capital for the company is 8.4%. What price would an investor be expected to pay per share ten years in the future?

Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah stock is $22.60, and Coolibah's equity cost of capital is 18%, what price would you expect Coolibah's stock to sell for at the end of three years?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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