Exam 7: Stock Valuation

The Valuation Principle states that the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock which the investor will receive.

Matilda Industries pays a dividend of $2.10 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 9%, which of the following would be closest to Matilda's stock price?

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%?

Credenza Industries is expected to pay a dividend of $1.70 at the end of the coming year. It is expected to sell for $62 at the end of the year. If its equity cost of capital is 9%, what is the expected capital gain from the sale of this stock at the end of the coming year?

Which of the following statements is FALSE about dividend payout and growth?

Which of the following statements is FALSE?

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?

A firm can either pay its earnings to its investors, or it can keep them and reinvest them.

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). What is Logitech International SA (USA)'s ticker symbol?

Which of the following will be a source of cash flows for a shareholder of a certain stock? I. Sale of the shares at a future date

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?

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 ________.

What are dividend payments?

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 ________.

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

You expect KT industries (KTI) will have earnings per share of $4 this year and expect that they will pay out $1.75 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 10%. The value of a share of KTI's stock today is closest to ________.

Which of the following models directly values all of the firm's equity, rather than a single share? I. Dividend-discount model

A stock is bought for $23.00 and sold for $27.00 one year later, immediately after it has paid a dividend of $1.50. What is the capital gain rate for this transaction?

Use the figure for the question(s) below. -The above screen shot 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?

Which of the following formulas is INCORRECT?