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Exam 7: Equity Markets and Stock Valuation

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Question 31

Multiple Choice

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Solar Energy will pay an annual dividend of $1.93 per share next year. The company just announced that future dividends will be increasing by 1.6 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 11.75 percent?

A) $15.14
B) $19.01
C) $19.78
D) $16.12
E) $19.32

F) C) and D)
G) C) and E)

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Question 32

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The Toy Chest will pay an annual dividend of $2.64 per share next year and currently sells for $48.30 a share based on a market rate of return of 11.67 percent. What is the capital gains yield?

A) 7.35 percent
B) 7.78 percent
C) 9.23 percent
D) 6.20 percent
E) 4.49 percent

F) C) and E)
G) None of the above

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Question 33

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Russell Foods pays a fixed annual dividend of $2.28 a share. At a required return of 11.5 percent, the stock is valued at $43.20 a share. What is the dividend growth rate at this price?

Today's stock market report shows that SW Companies has a PE ratio of 9.8, a dividend yield of 2.2 percent, a closing price $29.86, and a net change of .11. What is the annual dividend amount?

An agent who buys and sells securities from inventory is called a:

Business Solutions is expected to pay its first annual dividend of $.84 per share in Year 3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year. What is the value of this stock today, Year 0, at a required return of 14.4 percent?

JLT is a mature manufacturing firm. The company just paid an annual dividend of $3.62, but management expects to reduce future payouts by 3.5 percent per year, indefinitely. What is this stock worth today at a required return of 12.5 percent?

The Three Amigos just paid an annual dividend of $.60 per share but plans to double that amount each year for three years. After that, the firm expects to maintain a constant dividend. What is the value of this stock today if the required return is 15 percent?

NASDAQ is best described as:

AZ stock closed today at $18.24, down .23. The dividend yield is 2.4 percent. What was yesterday's closing price if the firm pays a constant $.40 per share quarterly dividend?

Dividends are best defined as:

The Fish House is expected to pay annual dividends of $1.23 and $1.25 at the end of the next two years, respectively. After that, the company expects to pay a constant dividend of $1.35 a share. What is the value of this stock at a required return of 16.4 percent?

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority?

The dividend yield on a stock will increase if the:

The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.12 per share a year for the following two years, and then a final liquidating dividend of $14.20 per share four years from now. How much is one share of this stock worth to you today if you require a rate of return of 18.7 percent of this risky investment?

Healthy Foods just paid its annual dividend of $1.62 a share. The firm recently announced that all future dividends will be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a rate of return of 15.7 percent?

Miller's Hardware has 415,000 shares of stock outstanding with a current market value of $42 a share. You own 84,500 of those shares. Next month, the election will be held to select four new members to the board of directors. The firm uses a cumulative voting system. How much additional money do you need to spend to guarantee that you will be elected to the board assuming that everyone else votes for one of the other candidates?

Which one of the following must equal zero if a firm pays a constant annual dividend?

The more actively traded large companies that are listed on NASDAQ are traded in which one of the NASDAQ markets?

River Rock, Inc., just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent?