Question 1

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 $22.40,and Coolibah's equity cost of capital is 16%,what price would you expect Coolibah's stock to sell for at the end of three years?

Accepted Answer

A)  $26.74
B)  $28.82
C)  $29.34
D)  $31.36
E)  $29.60 A

Question 2

Assuming everything else remains unchanged,how does a firm's decision to increase its dividend-payout ratio affect its growth rate?

Accepted Answer

Increasing dividend-payout ratio will decrease the retention rate,thereby decreasing the growth rate.

Question 3

If you want to value a firm that consistently pays out its earnings as dividends,the simplest model for you to use is the

Accepted Answer

A)  enterprise value model.
B)  total payout model.
C)  dividend-discount model.
D)  discounted free cash flow model.
E)  net present value model C

Question 4

Use the table for the question(s)below.
 
-Conundrum Mining is expected to generate the above free cash flows over the next four years,after which they are expected to grow at a rate of 5% per year.If the weighted average cost of capital is 12% and Conundrum has cash of $80 million,debt of $60 million,and 30 million shares outstanding,what is Conundrum's expected terminal enterprise value?

Accepted Answer

A)  $371.4 million
B)  $390.0 million
C)  $410.0 million
D)  $391.4 million
E)  $403.6 million

Question 5

Bondi Company is expected to pay a quarterly dividend of $0.45 for the next five years.If the current price of Bondi stock is $17.62,and Bondi's equity cost of capital is 12% per year,what price would you expect Bondi's stock to sell for at the end of the five years?

Accepted Answer

A)  $26.62
B)  $17.62
C)  $17.92
D)  $19.11
E)  $28.19

Question 6

Avril Synchronistics will pay a dividend of $1.30 per share this year.It is expected that this dividend will grow by 5% 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 14%?

Accepted Answer

A)  $9.23
B)  $9.28
C)  $14.44
D)  $15.16
E)  $16.21

Question 7

Xport International just announced that it plans to cut its dividend from $1.75 to $1.00 per share and use the extra funds to expand its operations.Prior to this announcement,Xport's dividends were expected to grow at 5% per year and Xport's stock was trading at $35.00 per share.With the new expansion,Xport's dividends are expected to grow at 7% per year indefinitely.Assuming that Xport's risk is unchanged by the expansion,the value of a share of Xport after the announcement is closest to:

Accepted Answer

A)  $30.00
B)  $33.33
C)  $35.00
D)  $37.50
E)  $50.00

Question 8

Forecasting dividends requires forecasting the firm's future earnings.

Accepted Answer

A) True 
 B)False

Question 9

Can the dividend-discount model handle negative growth rates?

Accepted Answer

The answer of Can the dividend-discount model handle negative growth...

Question 10

Valence Electronics has 217 million shares outstanding.It expects earnings at the end of the year of $760 million.Valence pays out 40% of its earnings in total-15% paid out as dividends and 25% used to repurchase shares.If Valences earnings are expected to grow by 6% per year,these payout rates do not change,and Valence's equity cost of capital is 8%,what is Valences share price?

Accepted Answer

A)  $10.51
B)  $24.40
C)  $56.60
D)  $70.05
E)  $85.25

Question 11

Von Bora Corporation (VBC)is expected to pay a $2.00 dividend at the end of this year.If you expect VBC's dividend to grow by 5% per year forever and VBC's equity cost of capital is 13%,then the value of a share of VBC stock is closest to:

Accepted Answer

A)  $25.00
B)  $40.00
C)  $15.40
D)  $11.10
E)  $10.00

Question 12

Parminder Partners is expected to generate free cash flows of $4 million per year for the next 5 years,after which they are expected to grow at a rate of 3% per year.The firm currently has $2 million of cash,$7 million of debt,and a cost of capital of 8%.If the firm has 10 million shares outstanding,what is Parminder's expected current share price?

Accepted Answer

A)  $6.71
B)  $6.29
C)  $6.55
D)  $7.21
E)  $6.51

Question 13

Suppose RBC has a current share price of $75.25 and an EPS of 6.57.Its competitor,CIBC,has an EPS of 8.94.Using the method of comparables,what is the expected price of CIBC stock?

Accepted Answer

A)  $58.74
B)  $45.63
C)  $102.36
D)  $11.45
E)  $55.30

Question 14

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

Accepted Answer

The answer of How can the dividend-discount model handle changing...

Question 15

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 May 30,2008.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
E)  $0.18

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

Accepted Answer

A)  LIS
B)  LOGITECH
C)  LOG
D)  LOGI
E)  NASDAQ

Question 17

Cork Bottlers has 84 million shares outstanding and expects earnings at the end of this year of $54 million.Cork plans to pay out 30% of its earnings as a dividend and 10% of its earnings through share repurchases.The firm has an equity cost of capital of 12%.If Tarmac' earnings are expected to grow by 6.5% per year and these payout rates remain constant,what is Tarmac's share price?

Accepted Answer

A)  $5.24
B)  $2.14
C)  $4.68
D)  $3.51
E)  $11.69

Question 18

Midwest Corporation is expected to pay an annual dividend of $0.45 per share in the coming year,and to trade for $31.10 at the end of the year.If investments with the same risk as Midwest's stock have an expected return of 8.5%,what is the most you would pay today for Midwest's stock?

Accepted Answer

A)  $31.10
B)  $29.08
C)  $31.55
D)  $28.25
E)  $30.65

Question 19

Use the figure for the question(s)below. 
-The above screen shot from Google Finance shows the basic stock information for Kraft Foods Inc.after the close of the stock market on May 30,2008.What is the highest that the stock has traded at in the last 12 months?

Accepted Answer

A)  $32.44
B)  $32.48
C)  $32.99
D)  $35.29
E)  $32.84

Question 20

Use the information for the question(s)below.
Gonzales Corporation generated free cash flow of $88 million this year.For the next two years,the company's free cash flow is expected to grow at a rate of 8%.After that time,the company's free cash flow is expected to level off to the industry long-term growth rate of 4% per year.Suppose the weighted average cost of capital is 10% and Gonzales Corporation has cash of $100 million,debt of $300 million,and 100 million shares outstanding.
-What is Gonzales Corporation's expected current share price?

Accepted Answer

A)  $16.42
B)  $13.85
C)  $14.42
D)  $18.42
E)  $19.34

Exam 7: Valuing Stocks