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Exam 8: Stock Valuation

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Question 21

Multiple Choice

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The Farmer's Market just paid an annual dividend of $5 on its stock.The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.Investors require a 13 percent return on the stock for the first 3 years,a 9 percent return for the next 3 years,a 7 percent return thereafter.What is the current price per share?

A) $212.40
B) $220.54
C) $223.09
D) $226.84
E) $227.50

F) A) and E)
G) D) and E)

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Question 22

Multiple Choice

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You are an accountant and have been analyzing the financial statements of Euro Place Markets,which is a foreign retailer.While the firm's financials are not prepared according to GAAP,you have still been able to understand the firm's accounting practices and feel that this firm has a bright future.On which one of the following U.S.markets,if any,might you be able to purchase shares in this firm?

A) NYSE.
B) NASDAQ.
C) OTCBB.
D) Pink Sheets.
E) No U.S.market will list this foreign security.

F) B) and C)
G) A) and C)

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Question 23

Multiple Choice

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Supernormal growth is a growth rate that:

Which one of the following players on the floor of the NYSE can be likened to part-time help because they are called to duty only when others are fully employed?

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:

Last year,Hansen Delivery paid an annual dividend of $3.20 per share.The company has been reducing the dividends by 10 percent annually.How much are you willing to pay to purchase stock in this company if your required rate of return is 13 percent?

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

The owner of one of the 1,366 trading licenses for the NYSE is called a:

Which one of the following statements related to the NYSE is correct?

Combined Communications is a new firm in a rapidly growing industry.The company is planning on increasing its annual dividend by 15 percent a year for the next 4 years and then decreasing the growth rate to 3.5 percent per year.The company just paid its annual dividend in the amount of $0.20 per share.What is the current value of one share of this stock if the required rate of return is 15.5 percent?

Winter Time Adventures is going to pay an annual dividend of $2.86 a share on its common stock next year.This year,the company paid a dividend of $2.75 a share.The company adheres to a constant rate of growth dividend policy.What will one share of this common stock be worth five years from now if the applicable discount rate is 11.7 percent?

What are the distributions to shareholders by a corporation called?

Jefferson Mills just paid a dividend of $1.56 per share on its stock.The dividends are expected to grow at a constant rate of 8 percent per year,indefinitely.What will the price of this stock be in 7 years if investors require a 15 percent rate of return?

Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors.The firm has a total of 100 shares of stock outstanding.Each share receives one vote.Presently,the company is voting to elect three new directors.Which one of the following statements must be true given this information?

High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year.Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3 percent annually.Given this information,you know for certain that the stock of High Country Builders' has a higher ______ than the stock of Valley High Builders.

Explain why small shareholders should prefer cumulative voting over straight voting.

The current dividend yield on Clayton's Metals common stock is 3.2 percent.The company just paid a $1.48 annual dividend and announced plans to pay $1.54 next year.The dividend growth rate is expected to remain constant at the current level.What is the required rate of return on this stock?

The common stock of Auto Deliveries sells for $28.16 a share.The stock is expected to pay $1.35 per share next year when the annual dividend is distributed.The firm has established a pattern of increasing its dividends by 3 percent annually and expects to continue doing so.What is the market rate of return on this stock?

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Miller Brothers Hardware paid an annual dividend of $0.95 per share last month.Today,the company announced that future dividends will be increasing by 2.6 percent annually.If you require a 13 percent rate of return,how much are you willing to pay to purchase one share of this stock today?