Question 1

The above screen shot from Google Finance shows basic stock information for PepsiCo. If you owned 
Of PepsiCo for the period shown, how much would you have earned in dividend payments?

Accepted Answer

A)  $480.00 
B)  $658.44 
C)  $584.80 
D)  $688.00

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

The answer of Assuming everything else remains unchanged, how does...

Question 3

Which of the following statements is FALSE?

Accepted Answer

A)  As firms mature, their earnings exceed their investment needs and they begin to pay dividends. 
B)  Total return equals earnings multiplied by the dividend payout rate. 
C)  Cutting the firm's dividend to increase investment will raise the stock price if, and only if, the new investments have a positive net present value (NPV). 
D)  We cannot use the constant dividend growth model to value the stock of a firm with rapid or changing growth.

Question 4

Jumbuck Exploration has a current stock price of $3.00 and is expected to sell for $3.15 in one year's time, immediately after it pays a dividend of $0.28. Which of the following is closest to Jumbuck Exploration's equity cost of capital?

Accepted Answer

A)  7.17% 
B)  8.60% 
C)  14.33% 
D)  17.91%

Question 5

Sultan Services has 1.2 million shares outstanding. It expects earnings at the end of the year of $6.0 million. Sultan pays out 60% of its earnings in total: 40% paid out as dividends and 20% used to repurchase shares. If Sultan's earnings are expected to grow by 5% per year, these payout rates do not change, and Sultan's equity cost of capital is 10%, what is Sultan's share price?

Accepted Answer

A)  $12.00 
B)  $24.00 
C)  $36.00 
D)  $60.00

Question 6

Von Bora Corporation (VBC) is expected to pay a $3.00 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBC stock is closest to ________.

Accepted Answer

A)  $42.86 
B)  $15.79 
C)  $25.72 
D)  $17.14

Question 7

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

Accepted Answer

A)  $11.20 
B)  $12.80 
C)  $16.80 
D)  $16.00

Question 8

Jumbo Transport, an air-cargo company, expects to have earnings per share of $2.00 in the coming year. It decides to retain 10% of these earnings in order to lease new aircraft. The return on this investment will be 25%. If its equity cost of capital is 11%, what is the expected share price of Jumbo Transport?

Accepted Answer

A)  $12.71 
B)  $14.83 
C)  $16.94 
D)  $21.18

Question 9

Chittenden Enterprises has 643 million shares outstanding. It expects earnings at the end of the year to be $960 million. The firm's equity cost of capital is 9%. Chittenden pays out 30% of its earnings in total: 20% paid out as dividends and 10% used to repurchase shares. If Chittenden's earnings are expected to grow at a constant 3% per year, what is Chittenden's share price?

Accepted Answer

A)  $3.74 
B)  $2.24 
C)  $7.47 
D)  $14.94

Question 10

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

Question 11

The Sisyphean Company's common stock is currently trading for $25.50 per share. The stock is expected to pay a $2.80 dividend at the end of the year and the Sisyphean Company's equity cost of capital is 10%. If the dividend payout rate is expected to remain constant, then the expected growth rate in the Sisyphean Company's earnings is closest to ________.

Accepted Answer

A)  -1.96% 
B)  -1.47% 
C)  -0.98% 
D)  -0.49%

Question 12

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

Accepted Answer

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

Question 13

A company has stock which costs $41.50 per share and pays a dividend of $2.50 per share this year. The company's cost of equity is 7%. What is the expected annual growth rate of the company's dividends?

Accepted Answer

A)  0.98% 
B)  1.96% 
C)  2.94% 
D)  3.92%

Question 14

You expect KT Industries (KTI) will have earnings per share of $5 this year and expect that they will pay out $1.25 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 15%. The expected growth rate for KTI's dividends is closest to ________.

Accepted Answer

A)  11.3% 
B)  9.8% 
C)  5.9% 
D)  3.9%

Question 15

A "round lot" consists of how many shares?

Accepted Answer

A)  1 
B)  10 
C)  100 
D)  1,000

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

JRN Enterprises just announced that it plans to cut its dividend from $3.00 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, JRN's dividends were expected to grow indefinitely at 4% per year and JRN's stock was trading at $25.50 per share. With the new expansion, JRN's dividends are expected to grow at 8% per year indefinitely. Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to ________.

Accepted Answer

A)  $19.32 
B)  $12.75 
C)  $38.63 
D)  $25.50

Question 18

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

Accepted Answer

A)  A common approximation is to assume that in the long run, dividends will grow at a constant rate. 
B)  The dividend each year is the firm's earnings per share (EPS) multiplied by its dividend payout rate. 
C)  There is a tremendous amount of uncertainty associated with any forecast of a firm's future dividends. 
D)  During periods of high growth, it is not unusual for firms to pay out 100% of their earnings to shareholders in the form of dividends.

Question 19

Which of the following statements is FALSE?

Accepted Answer

A)  Estimating dividends, especially for the distant future, is difficult. 
B)  A firm can only pay out its earnings to investors or reinvest their earnings. 
C)  Successful young firms often have high initial earnings growth rates. 
D)  According to the constant dividend growth model, the value of the firm depends on the current dividend level, divided by the equity cost of capital plus the grow rate.

Question 20

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 August 22, 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

Exam 7: Stock Valuation

The above screen shot from Google Finance shows basic stock information for PepsiCo. If you owned Of PepsiCo for the period shown, how much would you have earned in dividend payments?

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

Which of the following statements is FALSE?

Jumbuck Exploration has a current stock price of $3.00 and is expected to sell for $3.15 in one year's time, immediately after it pays a dividend of $0.28. Which of the following is closest to Jumbuck Exploration's equity cost of capital?

Von Bora Corporation (VBC) is expected to pay a $3.00 dividend at the end of this year. If you expect VBC's dividend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBC stock is closest to ________.

Owen Inc. has a current stock price of $15.00 and is expected to pay a $0.80 dividend in one year. If Owen's equity cost of capital is 12%, what price would its stock be expected to sell for immediately after it pays the dividend?

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?

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

A company has stock which costs $41.50 per share and pays a dividend of $2.50 per share this year. The company's cost of equity is 7%. What is the expected annual growth rate of the company's dividends?

A "round lot" consists of how many shares?

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

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

Which of the following statements is FALSE?

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 August 22, 2008. What is the difference between the opening and closing price of the stock on this date?