FIN 5200 AU Stock Valuation and Order Types Questions

#1 A company paid an annual dividend of $.40 a share last month and plans to increase the dividend by 7 percent a year for the next 6 years and then increase it by 4 percent annually thereafter. What is the value of this stock at the end of Year 6 if the discount rate is 11 percent?

Select one:

a. $9.37

b. $10.21

c. $9.68

d. $10.63

e. $8.92

#2 A company plans to pay an annual dividend of $.30 a share for two years commencing two years from today. After that time, a constant $1 a share annual dividend is planned indefinitely. Given a required return of 14 percent, what is the current value of this stock?

Select one:

a. $4.82

b. $5.58

c. $5.39

d. $5.46

e. $5.25

#3 A day order to sell at a limit of $32 will be:

Select one:

a. cancelled at the end of the day if not executed.

b. executed at the end-of-day price if $32 has not been obtained.

c. executed at the next available price once a trade occurs at the limit price.

d. transferred to a market order on the following day if not executed at the limit price.

e. executed only if the purchase price is less than the limit amount.

#4 A forward PE is generally based on the projected:

Select one:

a. earnings for the upcoming quarter.

b. average earnings for the next five years.

c. stock price in one year.

d. average earnings for the next three years.

e. earnings for the next year.

#5 A stock’s PE ratio is primarily affected by which three factors?

Select one:

a. risk, opportunities, accounting practices

b. accounting practices, market rate of return, risk

c. dividend yield, capital gains yield, and opportunities

d. market rate of return, risk, opportunities

e. accounting practices, opportunities, and the market rate of return

#6 A stop order to sell at $46 will be executed:

Select one:

a. at $46 following the first trade with a price below $46.

b. as a market order once a trade occurs at a price of $46 or less.

c. at a price of $46 at the end of the day on which the order was placed.

d. as a market order once a trade occurs at a price of $46 or higher.

e. immediately at a price of $46.

#7 Alpha Industries is going to pay $.35, $.50, and $.80 a share over the next three years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth today at a discount rate of 13.45 percent?

Select one:

a. $9.48

b. $5.06

c. $6.20

d. $10.88

e. $7.61

#8 Assume you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the:

Select one:

a. market values of all stocks to increase.

b. market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate.

c. dividend growth rates to increase to offset this change.

d. stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.

e. market values of all stocks to decrease.

#9 Bikes and More just announced its next annual dividend will be $2.42 a share and all future dividends will increase by 2.5 percent annually. What is the market rate of return if this stock is currently selling for $22 a share?

Select one:

a. 13.84%

b. 13.50%

c. 13.46%

d. 13.58%

e. 13.62%

#10 City Movers announced that its next annual dividend will be $.40 a share. The following dividends will be $.60, and $.75 a share annually for the following two years, respectively. After that, dividends are projected to increase by 3.5 percent per year. How much is one share of this stock worth at a rate of return of 12 percent?

Select one:

a. $6.84

b. $8.45

c. $7.03

d. $8.06

e. $7.87

#11Dexter’s has a fixed dividend payout ratio of 40 percent, current net income of $5,200, total assets of $56,400, and total equity of $21,600. Given this information, what estimate would you use as the dividend growth rate if the last dividend paid was $.464 per share?

Select one:

a. 14.44%

b. 12.84%

c. 9.63%

d. 8.61%

e. 3.69%

#12 Enterprise value equals the:

Select one:

a. combined book value of debt and equity minus excess cash.

b. market value of debt plus the book value of equity minus excess cash.

c. combined market value of debt and equity minus excess cash.

d. combined market value of debt and equity.

e. market value of equity minus the market value of debt plus excess cash.

#13 If a stock pays a constant annual dividend then the stock can be valued using the:

Select one:

a. present value of an annuity due formula.

b. present value of an ordinary annuity formula.

c. fixed coupon bond present value formula.

d. perpetuity present value formula.

e. payout ratio formula.

#14 In the formula, P3 = Div / R – g, the dividend is for period:

Select one:

a. one.

b. four.

c. two.

d. five.

e. three.

#15 Lory Company had net earnings of $127,000 this past year of which $46,200 was paid out in dividends. The company’s equity was $1,587,500. Lory has 200,000 shares outstanding with a current market price of $11.63 per share. Both the number of shares and the dividend payout ratio are constant. What is the required rate of return if the growth rate is 5.6 percent?

Select one:

a. 8.42%

b. 7.39%

c. 7.70%

d. 6.67%

e. 8.24%