Question 1

Winslow Brothers common stock sells for $36.60 a share and pays an annual dividend that increases by 1.8 percent annually.The market rate of return on this stock is 14.7 percent.What is the amount of the last dividend paid?

Accepted Answer

A)  $5.29
B)  $4.64
C)  $4.84
D)  $4.56
E)  $5.37 B

Question 2

Based on the dividend growth model,an increase in investors' overall level of required returns will

Accepted Answer

A)  cause the market values of all stocks to decrease,all else held constant.
B)  not affect overall stock market prices.
C)  cause dividend growth rates to increase to offset this change.
D)  cause non-dividend-paying stocks to decrease in price while dividend-paying stock prices remain constant.
E)  cause some stock prices to rise while others fall. A

Question 3

The total return on a stock is equal to

Accepted Answer

A)  Annual dividend / Current stock price.
B)  Capital gains yield - Dividend yield.
C)  Capital gains yield + Dividend yield.
D)  (1 + Dividend yield) × (1 + Inflation rate) - 1.
E)  (1 + Capital gains yield) / (1 + Dividend yield) - 1. C

Question 4

Duncan Street Mills is an all-equity firm with 28,000 shares of stock outstanding.The firm expects sales of $400,000 next year.Sales are expected to grow by 5 percent for the following 2 years and then level off to a constant 3 percent growth rate.Net cash flow varies in direct proportion to sales and is currently equal to 15 percent of sales.The required return for this firm is 16 percent.What is the estimated current value of one share of stock?

Accepted Answer

A)  $17.02
B)  $16.21
C)  $16.94
D)  $18.76
E)  $17.34

Question 5

A securities market primarily consisting of dealers who buy and sell for their own inventories is generally referred to as a(n)________ market.

Accepted Answer

A)  over-the-counter
B)  auction
C)  broker
D)  regional
E)  trading floor

Question 6

XanEx is a new firm that just paid an annual dividend of $1 a share.The firm plans to increase its dividend by 10 percent a year for the next 4 years and then decrease the growth rate to 2 percent annually.If the required rate of return is 18.25 percent,what is one share of this stock worth today?

Accepted Answer

A)  $8.05
B)  $8.19
C)  $11.05
D)  $11.19
E)  $14.81

Question 7

The Olde Mill just paid an annual dividend of $.38 a share and plans on decreasing this amount by 1 percent annually.What is the expected dividend for Year 6?

Accepted Answer

A)  $.3542
B)  $.3602
C)  $.3636
D)  $.3578
E)  $.3584

Question 8

DOC just paid a dividend of $.46 a share.The dividends are expected to increase by 30 percent a year for the next 2 years and then increase by 2 percent annually thereafter.What is the current value of a share if the appropriate discount rate is 15 percent?

Accepted Answer

A)  $5.72
B)  $6.91
C)  $5.38
D)  $6.26
E)  $6.42

Question 9

The voting procedure where you must control 50 percent plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called ________ voting.

Accepted Answer

A)  proxy
B)  cumulative
C)  deferred
D)  straight
E)  democratic

Question 10

The owner of preferred stock

Accepted Answer

A)  owns shares that generally have a stated liquidating value of $1,000 per share.
B)  has the right to veto the outcome of an election held by the common shareholders.
C)  has the right to collect payment on any unpaid dividends as long as the stock is noncumulative.
D)  is entitled to a distribution of income prior to the common shareholders.
E)  is guaranteed voting rights similar to a common shareholder.

Question 11

What is the primary business of the NYSE?

Accepted Answer

A)  Set market prices
B)  Provide a face-to-face trading floor
C)  Attract and process order flow
D)  Provide a primary market
E)  Regulate securities trading

Question 12

Nu-Tech stock's last annual dividend was $1.10 a share.Dividends are expected to increase by 15 percent for the next 2 years and then increase at a constant 3 percent annually.The required return is 17.5 percent.What is the current value per share?

Accepted Answer

A)  $11.09
B)  $10.33
C)  $9.28
D)  $10.63
E)  $9.62

Question 13

Ernst Electrical increases its annual dividend by 1.8 percent annually.The stock commands a market rate of return of 18 percent and sells for $19.07 a share.What is the expected amount of the next dividend?

Accepted Answer

A)  $3.03
B)  $3.07
C)  $3.18
D)  $3.21
E)  $3.09

Question 14

The voting procedure whereby shareholders may cast all of their votes for one candidate for the board of directors is called ________ voting.

Accepted Answer

A)  democratic
B)  deferred
C)  straight
D)  cumulative
E)  proxy

Question 15

Which one of the following statements concerning preferred stock is correct?

Accepted Answer

A)  Unpaid preferred dividends are a liability of the firm whether or not they have been declared.
B)  Preferred shareholders may be granted voting rights if preferred dividend payments remain unpaid.
C)  Any unpaid preferred dividends will accrue interest at a rate equal to the dividend rate.
D)  All unpaid dividends on both cumulative and noncumulative preferred stock must be paid before any common stock dividends can be declared.
E)  Preferred dividends will be paid quarterly only when the firm has current net income that exceeds the amount of the quarterly dividend.

Question 16

Mario's is going to pay $1,$2.65,and $4 a share over the next 3 years,respectively.After that,the company plans to pay annual dividends of $1.65 per share indefinitely.If your required return is 14 percent,how much are you willing to pay for one share today?

Accepted Answer

A)  $12.74
B)  $14.02
C)  $12.90
D)  $13.57
E)  $13.67

Question 17

The expected dividend yield is equal to

Accepted Answer

A)  Dividend yield × Next year's stock price.
B)  Expected cash dividend / Current stock price.
C)  Expected cash dividend / Next year's stock price.
D)  (Retention ratio × Expected earnings) / Current stock price.
E)  (Dividend payout ratio × Expected earnings) / Next year's stock price.

Question 18

Last year,Grenville common stock had a rate of return of 15.84 percent,a fixed annual dividend of $2.65 a share,and a dividend yield of 2.7 percent.What was the rate of price appreciation on the stock?

Accepted Answer

A)  13.50%
B)  12.48%
C)  12.75%
D)  13.14%
E)  13.85%

Question 19

Snider's Hardwoods has a dividend payout ratio of 45 percent,a return on assets of 9.4 percent,and a debt-equity ratio of 0.38.What is the firm's rate of growth?

Accepted Answer

A)  6.78%
B)  7.39%
C)  7.13%
D)  6.55%
E)  4.10%

Question 20

Denver Wool is owned by a group of shareholders who all vote independently and who all want personal control over the firm.There are three open seats and Danielle is one of six contenders.If straight voting is utilized and Danielle is a current shareholder,then he

Accepted Answer

A)  is only permitted to elect one director,regardless of the number of shares he owns.
B)  will be assured of his election if he owns at least one-sixth,plus one,of the outstanding shares.
C)  must own at least two-thirds of the shares,plus one,to exercise control over the elections.
D)  can only be assured of his election if he owns sufficient shares to control the entire election.
E)  can be assured of his election provided he owns more shares than any other single shareholder.

Exam 6: Stock Valuation