Question 1

Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.52, $1.58, and $1.60 a share over the next three years, respectively. After that, the dividend will be constant at $1.65 per share per year. What is the market price of this stock if the market rate of return is 12 percent?

Accepted Answer

A)   $13.98
B)   $14.07
C)   $13.54
D)   $14.16
E)   $15.01F) C) and E)
G) A) and B)

Question 2

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

Accepted Answer

A)   Alternative voting
B)   Cumulative voting
C)   Straight voting
D)   Indenture voting
E)   Voting by proxyF) B) and E)
G) B) and D)

Question 3

Currently, a firm has a benchmark PE of 11.7 and an EPS of $3.20. Earnings are expected to grow 3.2 percent annually. What is the implicit rate of return?

Accepted Answer

A)   3.20 percent
B)   2.89 percent
C)   4.08 percent
D)   3.67 percent
E)   4.23 percentF) A) and D)
G) C) and D)

Question 4

Galloway, Inc., just paid a dividend of $3 per share and has announced that it will increase its dividend by $1 per share for each of the next 4 years, and then never pay another dividend. What is the current per share value at a required return of 12.7 percent?

Accepted Answer

A)   $20.08
B)   $21.15
C)   $16.02
D)   $18.60
E)   $17.33F) A) and D)
G) D) and E)

Question 5

Future Motors is expected to pay an annual dividend next year of $3.10 a share. Dividends are expected to increase by 1.85 percent annually. What is one share of this stock worth at a required rate of return of 15 percent?

Accepted Answer

A)   $24.01
B)   $26.30
C)   $24.56
D)   $23.57
E)   $24.59F) None of the above
G) B) and C)

Question 6

The UpTowner just paid an annual dividend of $4.12. The company has a policy of increasing the dividend by 2.5 percent annually. You would like to purchase shares of stock in this firm but realize that you will not have the funds to do so for another four years. If you require a rate of return of 16.7 percent, how much will you be willing to pay per share when you can afford to make this investment?

Accepted Answer

A)   $32.03
B)   $32.83
C)   $33.12
D)   $33.65
E)   $32.47F) A) and E)
G) C) and D)

Question 7

Farm Machinery stock currently sells for $54.80 per share. The market required return is 14.2 percent while the company maintains a constant 3 percent growth rate in dividends. What was the most recent annual dividend per share paid on this stock?

Accepted Answer

A)   $6.14
B)   $5.96
C)   $6.08
D)   $5.99
E)   $5.87F) A) and E)
G) A) and C)

Question 8

Hot Teas common stock is currently selling for $38.97. The last annual dividend paid was $1.26 per share and the market rate of return is 13.2 percent. At what rate is the dividend growing?

Accepted Answer

A)   9.65 percent
B)   10.67 percent
C)   12.79 percent
D)   11.08 percent
E)   12.10 percentF) C) and D)
G) None of the above

Question 9

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

Accepted Answer

A)   pay an increasing dividend for a period of time and then cease paying dividends altogether.
B)   increase the dividend amount every other year.
C)   pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year.
D)   grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.
E)   pay increasing dividends for a fixed period of time, cease paying dividends for a period of time, and then commence paying increasing dividends for an indefinite period of time.F) B) and E)
G) D) and E)

Question 10

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

Accepted Answer

A)   must always show a current liability of $2,400 for dividends payable.
B)   must still declare each dividend before it becomes an actual company liability.
C)   is obligated to pay $2.40 per share each year in perpetuity.
D)   will be declared in default if it does not pay at least $2.40 per share per year on a timely basis.
E)   incurs a liability that must be paid at a later date should the company miss paying an annual dividend payment.F) A) and E)
G) A) and B)

Question 11

Sweatshirts Ltd. is downsizing. The company paid an annual dividend of $4.20 last year and has announced plans to lower the dividend by 25 percent each year. Once the dividend amount becomes zero, the company will go out of business. You have a required rate of return of 18 percent on this particular stock. What are your shares in this firm worth today on a per share basis?

Accepted Answer

A)   $7.33
B)   $0
C)   $8.68
D)   $8.29
E)   $7.11F) B) and D)
G) B) and E)

Question 12

The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent?

Accepted Answer

A)   $13.89
B)   $14.01
C)   $14.56
D)   $13.79
E)   $13.28F) B) and E)
G) B) and C)

Question 13

Kay's Sewing Loft is going to reduce its annual dividend by 10 percent a year for the next two years. After that, it will maintain a constant dividend of $2 a share. Last year, the company paid an annual dividend of $3 per share. What is the market value of this stock if the required return is 13.7 percent?

Accepted Answer

A)   $14.63
B)   $15.55
C)   $15.08
D)   $14.19
E)   $15.84F) B) and E)
G) A) and E)

Question 14

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Accepted Answer

A)   No dividends for five years, then increasing dividends forever
B)   $1 per share annual dividend for two years, then $1.25 annual dividends forever
C)   Decreasing dividends for six years followed by one final liquidating dividend payment
D)   Dividends payments that increase by 2, 3, and 4 percent respectively for three years followed by a constant dividend thereafter
E)   Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafterF) A) and B)
G) B) and E)

Question 15

Home Parties is paying an annual dividend of $1.78 every other year. The last dividend was paid last year. The firm will continue this policy until two more dividend payments have been paid. Three years after the last normal dividend payment, the company plans to pay a final liquidating dividend of $32 per share. What is the current market value of this stock if the required return is 14.7 percent?

Accepted Answer

A)   $18.92
B)   $16.78
C)   $14.63
D)   $17.14
E)   $19.25F) B) and D)
G) All of the above

Question 16

The average time for a trade on the NYSE Arca is best defined as less than:

Accepted Answer

A)   five minutes.
B)   ten minutes.
C)   one minute.
D)   one second.
E)   fifteen minutes.F) A) and B)
G) None of the above

Question 17

The dividend growth model:

Accepted Answer

A)   assumes dividends increase at a decreasing rate.
B)   only values stocks at Time 0.
C)   cannot be used to value constant dividend stocks.
D)   can be used to value both dividend-paying and non-dividend-paying stocks.
E)   requires the growth rate to be less than the required return.F) A) and B)
G) A) and D)

Exam 8: Stock Valuation

The dividend growth model:

Correct Answer
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Future Motors is expected to pay an annual dividend next year of $3.10 a share. Dividends are expected to increase by 1.85 percent annually. What is one share of this stock worth at a required rate of return of 15 percent?

Correct Answer
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Currently, a firm has a benchmark PE of 11.7 and an EPS of $3.20. Earnings are expected to grow 3.2 percent annually. What is the implicit rate of return?

Correct Answer
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Galloway, Inc., just paid a dividend of $3 per share and has announced that it will increase its dividend by $1 per share for each of the next 4 years, and then never pay another dividend. What is the current per share value at a required return of 12.7 percent?

Correct Answer
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The average time for a trade on the NYSE Arca is best defined as less than:

Correct Answer
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Farm Machinery stock currently sells for $54.80 per share. The market required return is 14.2 percent while the company maintains a constant 3 percent growth rate in dividends. What was the most recent annual dividend per share paid on this stock?

Correct Answer
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Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Correct Answer
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You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

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The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

Correct Answer
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Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

Correct Answer
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The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent?

Correct Answer
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Hot Teas common stock is currently selling for $38.97. The last annual dividend paid was $1.26 per share and the market rate of return is 13.2 percent. At what rate is the dividend growing?

Correct Answer
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Exam 8: Stock Valuation

The dividend growth model:

Correct AnswerverifiedShow Answer

Future Motors is expected to pay an annual dividend next year of $3.10 a share. Dividends are expected to increase by 1.85 percent annually. What is one share of this stock worth at a required rate of return of 15 percent?

Correct AnswerverifiedShow Answer

Currently, a firm has a benchmark PE of 11.7 and an EPS of $3.20. Earnings are expected to grow 3.2 percent annually. What is the implicit rate of return?

Correct AnswerverifiedShow Answer

Galloway, Inc., just paid a dividend of $3 per share and has announced that it will increase its dividend by $1 per share for each of the next 4 years, and then never pay another dividend. What is the current per share value at a required return of 12.7 percent?

Correct AnswerverifiedShow Answer

The average time for a trade on the NYSE Arca is best defined as less than:

Correct AnswerverifiedShow Answer

Farm Machinery stock currently sells for $54.80 per share. The market required return is 14.2 percent while the company maintains a constant 3 percent growth rate in dividends. What was the most recent annual dividend per share paid on this stock?

Correct AnswerverifiedShow Answer

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

Correct AnswerverifiedShow Answer

The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent?

Correct AnswerverifiedShow Answer

Hot Teas common stock is currently selling for $38.97. The last annual dividend paid was $1.26 per share and the market rate of return is 13.2 percent. At what rate is the dividend growing?

Correct AnswerverifiedShow Answer

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