Question 1

The last dividend paid by New Technologies was an annual dividend of $1.40 a share.Dividends for the next 3 years will be increased at an annual rate of 8 percent.After that,dividends are expected to increase by 3 percent each year.The discount rate is 16 percent.What is the current value of this stock?

Accepted Answer

A) $10.40 
B) $12.60 
C) $13.33 
D) $14.10 
E) $15.55

Question 2

A firm has net income of $198,500 and total equity of 1.15 million.There are 220,000 shares of stock outstanding at a price per share of $14.80.What is the firm's price-earnings ratio?

Accepted Answer

A) 16.21 
B) 16.40 
C) 17.09 
D) 17.28 
E) 17.94

Question 3

Which one of the following is a requirement of the two-stage dividend growth model?

Accepted Answer

A) both growth rates must be less than the discount rate 
B) one of the two growth rates must exceed the discount rate 
C) the first growth rate must exceed the second growth rate 
D) the first growth rate must equal the discount rate 
E) the second growth rate must be less than the discount rate

Question 4

The Potato Patch has a retention ratio of .80,dividends of $52,000,and total equity of $3.3 million.What is the firm's sustainable rate of growth?

Accepted Answer

A) 1.58 percent 
B) 4.22 percent 
C) 6.30 percent 
D) 7.38 percent 
E) 8.54 percent

Question 5

The Brown Jug has paid annual dividends of $0.61,$0.64,$0.71,$0.82,and $0.88 per share over the past 5 years,respectively.What is the geometric average dividend growth rate for this period?

Accepted Answer

A) 8.51 percent 
B) 8.97 percent 
C) 9.10 percent 
D) 9.59 percent 
E) 10.21 percent

Question 6

Ultra Fine Furnishings is in the process of selling its peripheral businesses and focusing on its upscale clients.In conjunction with this reorganization,the dividend will be decreased by 10 percent for the next three years.After that,the dividend will resume increasing at an annual rate of 5 percent.The required return on this stock is 14 percent and the last dividend paid was $2.40 a share.What is one share of this stock worth today?

Accepted Answer

A) $17.34 
B) $18.08 
C) $18.35 
D) $19.68 
E) $20.72

Question 7

A firm has paid annual dividends of $1.32,$1.43,$1.55,$1.62,$1.64,and $1.70 per share over the past 6 years,respectively.What is the geometric average growth rate for these dividends?

Accepted Answer

A) 5.19 percent 
B) 5.28 percent 
C) 5.48 percent 
D) 5.57 percent 
E) 5.74 percent

Question 8

Future stock prices that are estimated using any one of the various price ratios will be based on an assumption related to the ratio.What is that assumption?

Accepted Answer

The answer of Future stock prices that are estimated using...

Question 9

Knit 'n Needle started paying dividends 4 years ago.The annual dividends thus far have been $0.25,$0.27,$0.30,and $0.33,respectively.What is the arithmetic average dividend growth rate?

Accepted Answer

A) 6.33 percent 
B) 8.58 percent 
C) 9.70 percent 
D) 10.80 percent 
E) 11.17 percent

Question 10

Southern Foods just paid an annual dividend of $1.10 a share.Management estimates the dividend will increase by 10 percent a year for the next four years.After that,the annual dividend growth rate is estimated at 3.2 percent.The required rate of return is 12 percent.What is the value of this stock today?

Accepted Answer

A) $12.55 
B) $13.00 
C) $14.54 
D) $15.81 
E) $16.21

Question 11

Oak Supply has earnings per share of $1.22.The firm has $840,000 in equity and 60,000 shares of stock outstanding.What is the return on equity?

Accepted Answer

A) 7.92 percent 
B) 8.71 percent 
C) 9.09 percent 
D) 9.47 percent 
E) 10.36 percent

Question 12

The Rug Barn has paid annual dividends of $1.30,$1.36,$1.40,$1.42,and $1.45 over the last 5 years,respectively.What is the geometric average dividend growth rate?

Accepted Answer

A) 1.98 percent 
B) 2.11 percent 
C) 2.39 percent 
D) 2.55 percent 
E) 2.77 percent

Question 13

The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.

Accepted Answer

A) diminishing valuation growth model 
B) increasing valuation growth model 
C) constant perpetual growth model 
D) irregular growth perpetual model 
E) two-stage growth model

Question 14

The sustainable growth rate is equal to:

Accepted Answer

A) ROE × (1 - Payout ratio). 
B) ROA × (1 - Payout ratio). 
C) ROE × (1 - Retention ratio). 
D) ROA × (1 - Retention ratio). 
E) ROE × ROA.

Question 15

You would like to know the value of a firm's equity today in relation to the cost of that equity. Which one of the following ratios will provide you with this information?

Accepted Answer

A) price-earnings 
B) price-book 
C) price-sales 
D) price-cash flow 
E) price-assets

Question 16

Barn Wood Interiors announced today that it is going out of business.As of today,no more regular dividends will be paid.The firm will,however,pay two liquidating dividends.The first will be paid one year from now in the amount of $14 a share.The second and final payment will be paid two years from now at an estimated $38 a share.What is the value of this stock today at a discount rate of 18.7 percent?

Accepted Answer

A) $38.76 
B) $39.03 
C) $41.41 
D) $43.78 
E) $46.01

Question 17

Historically,Jones Trucking has had a P/E ratio of 14.6.The firm has current net income of $92,000 with 85,000 shares of stock outstanding.The EPS growth rate is 4.5 percent.What is the expected price of this stock one year from now?

Accepted Answer

A) $15.32 
B) $15.85 
C) $16.41 
D) $16.51 
E) $17.10

Question 18

Leslie Apparel has a current book value per share of $5.15 and current earnings per share of $1.13.The required return is 14 percent and the expected earnings growth rate is 4.5 percent.What is one share of this stock worth today?

Accepted Answer

A) $7.44 
B) $8.77 
C) $9.99 
D) $10.65 
E) $11.13

Question 19

The Back Room just paid an annual dividend of $1.65 a share.The firm expects to pay dividends forever and to increase the dividend by 3 percent annually.What is the expected value of this stock five years from now if the discount rate is 14 percent?

Accepted Answer

A) $17.39 
B) $17.91 
C) $18.06 
D) $18.52 
E) $19.08

Question 20

Blue Water Tours just paid an annual dividend of $0.80 a share.The firm has a policy of increasing the dividend by 3.5 percent annually.What is the current value of this stock at a discount rate of 11.5 percent?

Accepted Answer

A) $9.52 
B) $9.78 
C) $9.91 
D) $10.02 
E) $10.35

Exam 6: Common Stock Valuation