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Exam 9: Stock Valuation

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Question 41

Multiple Choice

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The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 15% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 10%?

A) $27.62
B) $28.79
C) $29.23
D) $32.15
E) $33.67

F) A) and D)
G) A) and C)

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Question 42

Multiple Choice

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Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time,the company plans on paying a constant $1 a share dividend indefinitely. Given a required return of 14%,what is the value of this stock?

A) $4.82
B) $5.25
C) $5.39
D) $5.46
E) $5.58

F) B) and D)
G) A) and B)

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Question 43

Multiple Choice

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Next year's annual dividend divided by the current stock price is called the:

The Lighthouse Co. is in a downsizing mode. The company paid a $2.50 annual dividend last year. The company has announced plans to lower the dividend by $.50 a year. Once the dividend amount becomes zero,the company will cease all dividends permanently. The required rate of return is 16%. What is one share of this stock worth?

Latcher's Inc. is a relatively new firm that is still in a period of rapid development. The company plans on retaining all of its earnings for the next six years. Seven years from now,the company projects paying an annual dividend of $.25 a share and then increasing that amount by 3% annually thereafter. To value this stock as of today,you would most likely determine the value of the stock _____ years from today before determining today's value.

A stock listing contains the following information: P/E 17.5,closing price 33.10,dividend .80,YTD% chg 3.4,and net chg - .50. Which of the following statements are correct given this information? I. The stock price has increased by 3.4% during the current year. II. The closing price on the previous trading day was $32.60. III. The earnings per share are approximately $1.89. IV. The current yield is 17.5%.

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%?

A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield of this stock is 9%,what is the dividend amount?

A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms. How is this possible? Does this violate our basic principle of stock valuation? Explain.

The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.

Last week,Railway Cabooses paid its annual dividend of $1.20 per share. The company has been reducing the dividends by 10% each year. How much are you willing to pay to purchase stock in this company if your required rate of return is 14%?

Now or Later,Inc. recently paid $1.10 as an annual dividend. Future dividends are projected at $1.14,$1.18,$1.22,and $1.25 over the next four years,respectively. After that,the dividend is expected to increase by 2% annually. What is one share of this stock worth to you if you require an 8% rate of return on similar investments?

The value of common stock today depends on:

S&P Enterprises will pay an annual dividend of $2.08 a share on its common stock next year. Last week,the company paid a dividend of $2.00 a share. The company adheres to a constant rate of growth dividend policy. What will one share of S&P common stock be worth ten years from now if the applicable discount rate is 8%?

Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond,and explain why.

The Felix Corp. projects to pay a dividend of $.75 next year and then have it grow at 12% for the following 3 years before growing at 8% indefinitely thereafter. The equity has a required return of 10% in the market. The price of the stock should be _______.

Mortgage Instruments Inc. is expected to pay dividends of $1.03 next year. The company just paid a dividend of $1. This growth rate is expected to continue. How much should be paid for Mortgage Instruments stock just after the dividend if the appropriate discount rate is 5%.