1、Chapter 09 - Stock Valuation9-1Chapter 09How to Value StocksMultiple Choice Questions1. 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. A. zero growth
2、B. dividend growthC. capital pricingD. earnings capitalizationE. differential growth2. Next years annual dividend divided by the current stock price is called the: A. yield to maturity.B. total yield.C. dividend yield.D. capital gains yield.E. earnings yield.3. The rate at which a stocks price is ex
3、pected to appreciate (or depreciate) is called the _ yield. A. currentB. totalC. dividendD. capital gainsE. earnings4. A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _ stock. A. dual classB. cumulativeC. deferredD
4、. preferredE. commonChapter 09 - Stock Valuation9-25. Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in kind, are called: A. retained earnings.B. net income.C. dividends.D. redistributions.E. infused equity.6. The constant dividend growth model is:
5、A. generally used in practice because most stocks have a constant growth rate.B. generally used in practice because the historical growth rate of most stocks is constant.C. generally not used in practice because most stocks grow at a non constant rate.D. generally not used in practice because the co
6、nstant growth rate is usually higher than the required rate of return.E. based on the assumption Dow 30 represents a good estimate of the market index.7. The constant dividend growth model:I. assumes that dividends increase at a constant rate forever.II. can be used to compute a stock price at any p
7、oint of time.III. states that the market price of a stock is only affected by the amount of the dividend.IV. considers capital gains but ignores the dividend yield. A. I onlyB. II onlyC. III and IV onlyD. I and II onlyE. I, II, and III only8. The underlying assumption of the dividend growth model is
8、 that a stock is worth: A. the same amount to every investor regardless of their desired rate of return.B. the present value of the future income which the stock generates.C. an amount computed as the next annual dividend divided by the market rate of return.D. the same amount as any other stock tha
9、t pays the same current dividend and has the same required rate of return.E. an amount computed as the next annual dividend divided by the required rate of return.Chapter 09 - Stock Valuation9-39. Assume that you are using the dividend growth model to value stocks. If you expect the market rate of r
10、eturn to increase across the board on all equity securities, then you should also expect the: A. market values of all stocks to increase, all else constant.B. market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate.C. market values of all sto
11、cks to decrease, all else constant.D. stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.E. dividend growth rates to increase to offset this change.10. Latchers Inc. is a relatively new firm that is still in a period of rapid development.
12、 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 th
13、e stock _ years from today before determining todays value. A. 4B. 5C. 6D. 7E. 811. The Robert Phillips Co. currently pays no dividend. The company is anticipating dividends of $0, $0, $0, $.10, $.20, and $.30 over the next 6 years, respectively. After that, the company anticipates increasing the di
14、vidend by 4% annually. The first step in computing the value of this stock today, is to compute the value of the stock when it reaches constant growth in year: A. 3B. 4C. 5D. 6E. 7Chapter 09 - Stock Valuation9-412. Differential growth refers to a firm that increases its dividend by: A. three or more
15、 percent per year.B. a rate which is most likely not sustainable over an extended period of time.C. a constant rate of two or more percent per year.D. $.10 or more per year.E. an amount in excess of $.10 a year.13. The total rate of return earned on a stock is comprised of which two of the following
16、?I. current yieldII. yield to maturityIII. dividend yieldIV. capital gains yield A. I and II onlyB. I and IV onlyC. II and III onlyD. II and IV onlyE. III and IV only14. Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a shar
17、e. The stock pays a $1 a year dividend. The price of ABC stock needs to _ if Fred is to achieve his 10% rate of return. A. remain constantB. decrease by 5%C. increase by 5%D. increase by 10%E. increase by 15%15. The Scott Co. has a general dividend policy whereby it pays a constant annual dividend o
18、f $1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company: A. must always show a current liability of $1,000 for dividends payable.B. is obligated to continue paying $1 per share per year.C. will be declared in default and can face bankruptcy if it does not pay $1 p
19、er year to each shareholder on a timely basis.D. has a liability which must be paid at a later date should the company miss paying an annual dividend payment.E. must still declare each dividend before it becomes an actual company liability.Chapter 09 - Stock Valuation9-516. The value of common stock
20、 today depends on: A. the expected future holding period and the discount rate.B. the expected future dividends and the capital gains.C. the expected future dividends, capital gains and the discount rate.D. the expected future holding period and capital gains.E. None of the above.17. The closing pri
21、ce of a stock is quoted at 22.87, with a P/E of 26 and a net change of 1.42. Based on this information, which one of the following statements is correct? A. The closing price on the previous day was $1.42 higher than todays closing price.B. A dealer will buy the stock at $22.87 and sell it at $26 a
22、share.C. The stock increased in value between yesterdays close and todays close by $.0142.D. The earnings per share are equal to 1/26th of $22.87.E. The earnings per share have increased by $1.42 this year.18. A stock listing contains the following information: P/E 17.5, closing price 33.10, dividen
23、d .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 curre
24、nt yield is 17.5%. A. I and II onlyB. I and III onlyC. II and III onlyD. III and IV onlyE. I, III, and IV only19. The discount rate in equity valuation is composed entirely of: A. the dividends paid and the capital gains yield.B. the dividend yield and the growth rate.C. the dividends paid and the g
25、rowth rate.D. the capital gains earned and the growth rate.E. the capital gains earned and the dividends paid.Chapter 09 - Stock Valuation9-620. The net present value of a growth opportunity, NPVGO, can be defined as: A. the initial investment necessary for a new project.B. the net present value per
26、 share of an investment in a new project.C. a continual reinvestment of earnings when r g.E. None of the above.21. Angelinas made two announcements concerning its common stock today. First, the company announced that its next annual dividend has been set at $2.16 a share. Secondly, the company annou
27、nced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelinas stock if your goal is to earn a 10% rate of return? A. $21.60B. $22.46C. $27.44D. $34.62E. $36.0022. How much are you willing to pay for one share of stock if the c
28、ompany just paid an $.80 annual dividend, the dividends increase by 4% annually and you require an 8% rate of return? A. $19.23B. $20.00C. $20.40D. $20.80E. $21.6323. Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are expected to increase by 5% annually. What is one sha
29、re of this stock worth to you today if the appropriate discount rate is 14%? A. $7.14B. $7.50C. $11.11D. $11.67E. $12.25Chapter 09 - Stock Valuation9-724. Majestic Homes stock traditionally provides an 8% rate of return. The company just paid a $2 a year dividend which is expected to increase by 5%
30、per year. If you are planning on buying 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 9% at the time of your purchase? A. $48.60B. $52.50C. $55.13D. $57.89E. $70.0025. Leslies Unique Clothing Stores offers
31、a common stock that pays an annual dividend of $2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 12% return on your equity investments? A. $10.00B. $13.33C. $16.67D. $18.88E. $20.0026. Martins Ya
32、chts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the past three years, respectively. The company now predicts that it will maintain a constant dividend since its business has leveled off and sales are expected to remain relatively constant. Given the lack of future growth, you
33、will only buy this stock if you can earn at least a 15% rate of return. What is the maximum amount you are willing to pay to buy one share today? A. $10.00B. $13.33C. $16.67D. $18.88E. $20.00Chapter 09 - Stock Valuation9-827. The common stock of Eddies Engines, Inc. sells for $25.71 a share. The sto
34、ck is expected to pay $1.80 per share next month when the annual dividend is distributed. Eddies has established a pattern of increasing its dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock? A. 7%B. 9%C. 11%D. 13%E. 15%28. The current yield o
35、n Alphas common stock is 4.8%. The company just paid a $2.10 dividend. The rumor is that the dividend will be $2.205 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on Alphas stock? A. 10.04%B. 16.07%C. 21.88%D. 43.75%E. 45
36、.94%29. Marthas Vineyard recently paid a $3.60 annual dividend on its common stock. This dividend increases at an average rate of 3.5% per year. The stock is currently selling for $62.10 a share. What is the market rate of return? A. 2.5%B. 3.5%C. 5.5%D. 6.0%E. 9.5%Chapter 09 - Stock Valuation9-930.
37、 BetR Bilt Bikes just announced that its annual dividend for this coming year will be $2.42 a share and that all future dividends are expected to increase by 2.5% annually. What is the market rate of return if this stock is currently selling for $22 a share? A. 9.5%B. 11.0%C. 12.5%D. 13.5%E. 15.0%31
38、. Shares of common stock of the Samson Co. offer an expected total return of 12%. The dividend is increasing at a constant 8% per year. The dividend yield must be: A. -4%.B. 4%.C. 8%.D. 12%.E. 20%.32. The common stock of Grady Co. had an 11.25% rate of return last year. The dividend amount was $.70
39、a share which equated to a dividend yield of 1.5%. What was the rate of price appreciation on the stock? A. 1.50%B. 8.00%C. 9.75%D. 11.25%E. 12.75%33. Weisbro and Sons common stock sells for $21 a share and pays an annual dividend that increases by 5% annually. The market rate of return on this stoc
40、k is 9%. What is the amount of the last dividend paid by Weisbro and Sons? A. $.77B. $.80C. $.84D. $.87E. $.88Chapter 09 - Stock Valuation9-1034. The common stock of Energizers pays an annual dividend that is expected to increase by 10% annually. The stock commands a market rate of return of 12% and
41、 sells for $60.50 a share. What is the expected amount of the next dividend to be paid on Energizers common stock? A. $.90B. $1.00C. $1.10D. $1.21E. $1.3335. The Reading Co. has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3% annually. The last dividen
42、d it paid was $0.90 a share. What will the companys dividend be in six years? A. $0.90B. $0.93C. $1.04D. $1.07E. $1.1136. 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. $1.40B. $1.80C. $2.20D. $2.40E. $
43、2.8037. You have decided that you would like to own some shares of GH Corp. but need an expected 12% rate of return to compensate for the perceived risk of such ownership. What is the maximum you are willing to spend per share to buy GH stock if the company pays a constant $3.50 annual dividend per
44、share? A. $26.04B. $29.17C. $32.67D. $34.29E. $36.59Chapter 09 - Stock Valuation9-1138. Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of 9.5%. The company just paid its annual dividend of $1.20. What is the rate of growth of its dividend? A. 5.2%B. 5.5%C. 5.9%D
45、. 6.0%E. 6.3%39. B&K 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 B&K common stock be worth ten years from now
46、if the applicable discount rate is 8%? A. $71.16B. $74.01C. $76.97D. $80.05E. $83.2540. Wilberts Clothing Stores just paid a $1.20 annual dividend. The company has a policy whereby the dividend increases by 2.5% annually. You would like to purchase 100 shares of stock in this firm but realize that y
47、ou will not have the funds to do so for another three years. If you desire a 10% rate of return, how much should you expect to pay for 100 shares when you can afford to buy this stock? Ignore trading costs. A. $1,640B. $1,681C. $1,723D. $1,766E. $1,810Chapter 09 - Stock Valuation9-1241. The Merriwea
48、ther Co. just announced that it will pay a dividend next year of $1.60 and is establishing a policy whereby the dividend will increase by 3.5% annually thereafter. How much will one share be worth five years from now if the required rate of return is 12%? A. $21.60B. $22.36C. $23.14D. $23.95E. $24.7
49、942. 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. $35.63B. $38.19C. $41.05D. $43.19E. $45.8143. The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The company is planning on paying $3.00, $5.00, $7.50, and $10
