Question 1

Which of the following statements is CORRECT?

Accepted Answer

A)   The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
B)   The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
C)   The stock valuation model, P0 = D1/(rs - g) , cannot be used for firms that have negative growth rates.
D)   The stock valuation model, P0 = D1/(rs - g) , can be used only for firms whose growth rates exceed their required returns.
E)   If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.F) A) and B)
G) A) and E)

Question 2

The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Accepted Answer

A)   $37.05
B)   $38.16
C)   $39.30
D)   $40.48
E)   $41.70F) A) and D)
G) A) and C)

Question 3

If D? = $1.50, g (which is constant) = 6.5%, and P? = $56, what is the stock's expected capital gains yield for the coming year?

Accepted Answer

A)   6.50%
B)   6.83%
C)   7.17%
D)   7.52%
E)   7.90%F) A) and C)
G) A) and E)

Question 4

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Accepted Answer

A)   6.62%
B)   6.82%
C)   7.03%
D)   7.25%
E)   7.47%F) C) and D)
G) A) and B)

Question 5

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Accepted Answer

A)   Stock Y has a higher dividend yield than Stock X.
B)   One year from now, Stock X's price is expected to be higher than Stock Y's price.
C)   Stock X has the higher expected year-end dividend.
D)   Stock Y has a higher capital gains yield.
E)   Stock X has a higher dividend yield than Stock Y.F) A) and B)
G) C) and D)

Question 6

Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Accepted Answer

A) True 
 B)False

Question 7

If D? = $2.25, g (which is constant) = 3.5%, and P? = $50, what is the stock's expected dividend yield for the coming year?

Accepted Answer

A)   4.42%
B)   4.66%
C)   4.89%
D)   5.13%
E)   5.39%F) B) and D)
G) A) and E)

Question 8

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Accepted Answer

A) True 
 B)False

Question 9

Preferred stock is a hybrid¾a sort of cross between a common stock and a bond¾in the sense that it pays dividends that normally increase annually like a stock but its payments are contractually guaranteed like interest on a bond.

Accepted Answer

A) True 
 B)False

Question 10

Sawchuck Consulting has been profitable for the last 5 years, but it has never paid a dividend.Management has indicated that it plans to pay a $0.25 dividend 3 years from today, then to increase it at a relatively rapid rate for 2 years, and then to increase it at a constant rate of 8.00% thereafter.Management's forecast of the future dividend stream, along with the forecasted growth rates, is shown below.Assuming a required return of 11.00%, what is your estimate of the stock's current value?

Accepted Answer

A)   $9.94
B)   $10.19
C)   $10.45
D)   $10.72
E)   $10.99F) A) and E)
G) C) and D)

Question 11

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is Jameson's current stock price, P??

Accepted Answer

A)   $18.62
B)   $19.08
C)   $19.56
D)   $20.05
E)   $20.55F) D) and E)
G) B) and E)

Question 12

Dyer Furniture is expected to pay a dividend of D? = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%.What is Dyer's current stock price?

Accepted Answer

A)   $28.90
B)   $29.62
C)   $30.36
D)   $31.12
E)   $31.90F) B) and D)
G) C) and D)

Question 13

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Accepted Answer

A)   Stock A has a higher dividend yield than Stock B.
B)   Currently the two stocks have the same price, but over time Stock B's price will pass that of A.
C)   Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.
D)   The two stocks should not sell at the same price.If their prices are equal, then a disequilibrium must exist.
E)   Stock A's expected dividend at t = 1 is only half that of Stock B.F) A) and B)
G) A) and C)

Question 14

Based on the corporate valuation model, Bizzaro Co.'s value of operations is $300 million.The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity.Bizzaro has 10 million shares of stock outstanding.What is the best estimate of the stock's price per share?

Accepted Answer

A)   $13.72
B)   $14.44
C)   $15.20
D)   $16.00
E)   $16.80F) B) and E)
G) A) and B)

Question 15

The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Accepted Answer

A) True 
 B)False

Question 16

When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Accepted Answer

A) True 
 B)False

Question 17

Burke Tires just paid a dividend of D? = $1.32.Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Accepted Answer

A)   $41.59
B)   $42.65
C)   $43.75
D)   $44.87
E)   $45.99F) B) and E)
G) A) and B)

Question 18

The required return for Williamson Heating's stock is 12%, and the stock sells for $40 per share.The firm just paid a dividend of $1.00, and the dividend is expected to grow by 30% per year for the next 4 years, so D? = $1.00(1.30) ? = $2.8561.After t = 4, the dividend is expected to grow at a constant rate of X% per year forever.What is the stock's expected constant growth rate after t = 4, i.e., what is X?

Accepted Answer

A)   5.17%
B)   5.44%
C)   5.72%
D)   6.02%
E)   6.34%F) B) and E)
G) A) and E)

Question 19

The constant growth DCF model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is CORRECT?

Accepted Answer

A)   The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
B)   Corporations cannot buy the preferred stocks of other corporations.
C)   Preferred dividends are not generally cumulative.
D)   A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.
E)   Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.F) A) and E)
G) A) and C)

Exam 7: Valuation of stocks and corporations

Burke Tires just paid a dividend of D? = $1.32.Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct Answer
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The constant growth DCF model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Correct Answer
verified

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Correct Answer
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Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Correct Answer
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The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Correct Answer
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If D? = $1.50, g (which is constant) = 6.5%, and P? = $56, what is the stock's expected capital gains yield for the coming year?

Correct Answer
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The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is Jameson's current stock price, P??

Correct Answer
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Correct Answer
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Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Correct Answer
verified

Correct Answer
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The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Correct Answer
verified

If D? = $2.25, g (which is constant) = 3.5%, and P? = $50, what is the stock's expected dividend yield for the coming year?

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Preferred stock is a hybrid¾a sort of cross between a common stock and a bond¾in the sense that it pays dividends that normally increase annually like a stock but its payments are contractually guaranteed like interest on a bond.

Correct Answer
verified

When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Correct Answer
verified

Correct Answer
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The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
verified

Exam 7: Valuation of stocks and corporations

Burke Tires just paid a dividend of D? = $1.32.Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.The required return on this low-risk stock is 9.00%.What is the best estimate of the stock's current market value?

Correct AnswerverifiedShow Answer

The constant growth DCF model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Correct AnswerverifiedShow Answer

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stocks A and B have the following data.Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Correct AnswerverifiedShow Answer

The total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Correct AnswerverifiedShow Answer

If D? = $1.50, g (which is constant) = 6.5%, and P? = $56, what is the stock's expected capital gains yield for the coming year?

Correct AnswerverifiedShow Answer

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%.What is Jameson's current stock price, P??

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm.This right helps protect current stockholders against both dilution of control and dilution of value.

Correct AnswerverifiedShow Answer

If D? = $2.25, g (which is constant) = 3.5%, and P? = $50, what is the stock's expected dividend yield for the coming year?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Preferred stock is a hybrid¾a sort of cross between a common stock and a bond¾in the sense that it pays dividends that normally increase annually like a stock but its payments are contractually guaranteed like interest on a bond.

Correct AnswerverifiedShow Answer

When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The last dividend paid by Wilden Corporation was $1.55.The dividend growth rate is expected to be constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

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