Question 1

Dividends are:

Accepted Answer

A) payable at the discretion of a firm's president. 
B) treated as a tax-deductible expense of the issuing firm. 
C) paid out of aftertax profits. 
D) paid only to preferred stockholders. 
E) only partially taxable to high-income individual shareholders.

Question 2

Village East expects to pay an annual dividend of $1.40 per share next year, and $1.68 per share for the following two years.After that, the company plans to increase the dividend by 3.4 percent annually.What is this stock's current value at a discount rate of 13.7 percent?

Accepted Answer

A) $14.09 
B) $17.28 
C) $15.15 
D) $16.08 
E) $18.18

Question 3

Which one of the following is an electronic network that enables Katie to sell her shares of ABC stock directly to Marti?

Accepted Answer

A) SuperDOT 
B) POST 
C) ECN 
D) SEAT 
E) eNET

Question 4

Which one of the following types of securities has the lowest priority in a bankruptcy proceeding?

Accepted Answer

A) Convertible bond 
B) Senior debt 
C) Common stock 
D) Preferred stock 
E) Straight bond

Question 5

Nu-Tek is expanding rapidly.As a result, the company expects to pay annual dividends of $.62, .80, and $1.05 per share over the next three years, respectively.After that, the dividend is projected to increase by 4 percent annually.What is the current value of this stock if the required return is 16 percent?

Accepted Answer

A) $7.63 
B) $9.67 
C) $10.46 
D) $6.58 
E) $8.49

Question 6

The Glass Ceiling paid an annual dividend of $1.64 per share last year and just announced that future dividends will increase by 1.3 percent annually.What is the amount of the expected dividend in Year 6?

Accepted Answer

A) $1.43 
B) $1.75 
C) $1.46 
D) $1.77 
E) $1.58

Question 7

Dividends are best defined as:

Accepted Answer

A) cash payments to shareholders. 
B) cash payments to either bondholders or shareholders. 
C) cash or stock payments to shareholders. 
D) cash or stock payments to either bondholders or shareholders. 
E) distributions of stock to current shareholders.

Question 8

Canine Crates just paid an annual dividend of $..45 per share but plans to double that amount each year for three years.After that, the firm expects to maintain a constant dividend.What is the value of this stock today if the required return is 13 percent?

Accepted Answer

A) $24.48 
B) $26.45 
C) $23.46 
D) $19.91 
E) $23.89

Question 9

Gleason, Inc., elects its board of directors on a staggered basis using cumulative voting.This implies that:

Accepted Answer

A) if there are two open seats, then the candidate with the highest number of votes and the candidate with the lowest number of votes will be selected. 
B) the candidates for the open seats are voted for in individual elections. 
C) all open positions are filled with one round of voting, assuming there are no tie votes. 
D) shareholders can accumulate their votes over multiple years and cast all those votes in one election. 
E) the firm's entire board of directors is elected annually in one combined election.

Question 10

Ferris Athletic Equipment plans to pay an annual dividend of $1.90 per share next year, $1.25 per share a year for the following two years, and then a final liquidating dividend of $11.50 per share four years from now.How much is one share of this stock worth to you today if you require a rate of return of 19.65 percent of this risky investment?

Accepted Answer

A) $8.80 
B) $7.54 
C) $6.74 
D) $11.77 
E) $9.47

Question 11

Great Lakes Steel Supply is losing significant market share and thus its managers have decided to decrease the firm's annual dividend.The last annual dividend was $.1.30 per share but all future dividends will be decreased by 2.75 percent annually.What is a share of this stock worth today at a required return of 15.5 percent?

Accepted Answer

A) $6.09 
B) $6.93 
C) $6.50 
D) $6.68 
E) $6.98

Question 12

JL Tools is a young start-up company.The company expects to pay its first dividend of $.20 a share in Year 6 with annual dividend increases of 1.5 percent thereafter.At a required return of 12 percent, what is the current share price?

Accepted Answer

A) $1.77 
B) $1.08 
C) $1.23 
D) $1.90 
E) $2.13

Question 13

AZ stock closed today at $18.24, down .23.The dividend yield is 2.4 percent.What was yesterday's closing price if the firm pays a constant $.40 per share quarterly dividend?

Accepted Answer

A) $16.67 
B) $18.01 
C) $16.90 
D) $18.47 
E) $17.40

Question 14

What is the market called that facilitates the sale of shares between individual investors?

Accepted Answer

A) Primary 
B) Proxy 
C) Secondary 
D) Inside 
E) Initial

Question 15

Which one of the following features applies to NASDAQ but not the NYSE?

Accepted Answer

A) Trading in the crowd 
B) Multiple market maker system 
C) SuperDot 
D) Broker market 
E) Physical trading floor

Question 16

Hi-Lo has 160,000 shares outstanding priced at $33 a share.There will be three open positions on its board in the next election.Currently, you are not a shareholder but would like to become one and also gain a seat on the board.How much will it cost you to buy a seat if the company uses straight voting? What if the firm uses cumulative voting?

Accepted Answer

A) $2,640,033; $1,320,033 
B) $2,710,033; $1,760,033 
C) $2,710,033; $1,430,033 
D) $2,640,033; $1,320,033. 
E) $2,640,033; $1,760,033.

Question 17

According to today's stock report, BL Lumber shares were up .14, the stock dividend yield is 2.6 percent, and the PE ratio is 9.8.What is the amount of the next annual dividend if yesterday's closing price was $35.14?

Accepted Answer

A) $.918 
B) $.917 
C) $.914 
D) $.924 
E) $9.31

Question 18

Gamma Corp.is expected to pay the following dividends over the next four years: $7.50, $8.25, $15, and $1.80.Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever.If the required return is 14 percent, what is the current share price?

Accepted Answer

A) $35.20 
B) $31.06 
C) $38.18 
D) $32.30 
E) $34.90

Question 19

The common stock of Duck Diagnostics is selling for $69.23 per share.The company pays a constant annual dividend and has a total return of 9.1 percent.What is the amount of the dividend?

Accepted Answer

A) $4.25 
B) $4.27 
C) $6.30 
D) $6.92 
E) $6.03

Question 20

Business Calculators Inc.will pay an annual dividend of $2.25 per share next year.The company just announced that future dividends will be increasing by 0.75 percent annually.How much are you willing to pay for one share of this stock if you require a rate of return of 12.25 percent?

Accepted Answer

A) $18.30 
B) $19.57 
C) $22.94 
D) $19.28 
E) $22.48

Exam 7: Equity Markets and Stock Valuation