review exam

Topics: Net present value, Preferred stock, Dividend yield Pages: 18 (4259 words) Published: October 13, 2014
Fin 3010Dr. MichelloSummer 2007
Practice Problems

Expected dividend yieldAnswer: a EASY
i.If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected dividend yield for the coming year?

a.5.0%
b.6.0%
c.7.0%
d.8.0%
e.9.0%

Expected return, dividend yield, and capital gains yieldAnswer: e EASY ii.If D1 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected capital gains yield for the coming year?

a.5.2%
b.5.4%
c.5.6%
d.5.8%
e.6.0%

Expected total returnAnswer: d EASY
iii.If D0 = $2.00, g (which is constant) = 6%, and P0 = $40, what is the stock’s expected total return for the coming year?

a.9.8%
b.10.3%
c.10.8%
d.11.3%
e.11.8%

Constant growth valuationAnswer: b EASY
iv.A stock just paid a dividend of $1. The required rate of return is rs = 11%, and the constant growth rate is 5%. What is the current stock price?

a.$15.00
b.$17.50
c.$20.00
d.$22.50
e.$25.00

Preferred stock valuationAnswer: d EASY
v.Mark Walker Inc plans to issue preferred stock with a perpetual annual dividend of $2 per share and a par value of $25. If the required return on this stock is currently 8%, what should be the stock’s market value?

a.$22.00
b.$23.00
c.$24.00
d.$25.00
e.$26.00

Constant growth rateAnswer: b EASY
vi.Hahn Manufacturing is expected to pay a dividend of $1.00 per share at the end of the year (D1 = $1.00). The stock sells for $40 per share, and its required rate of return is 11%. The dividend is expected to grow at a constant rate, g, forever. What is Hahn's expected growth rate?

a. 8.00%
b. 8.50%
c. 9.00%
d. 9.50%
e.10.00%

Future price of a constant growth stockAnswer: e EASY
vii.P. Daves Inc's stock is currently sells for $45 per share. The stock’s dividend is projected to increase at a constant rate of 4% per year. The required rate of return on the stock, rs, is 12%. What is Daves' expected price 6 years from now?

a.$52.68
b.$53.71
c.$54.41
d.$55.12
e.$56.94

Constant growth valuation; CAPMAnswer: e MEDIUM
viii.The Corrigan Company just paid a dividend of $1 per share, and that dividend is expected to grow at a constant rate of 5% per year in the future. The company's beta is 1.2, the market risk premium is 5%, and the risk-free rate is 3%. What is the company's current stock price?

a.$19.25
b.$21.00
c.$22.75
d.$24.50
e.$26.25

Preferred required returnAnswer: c MEDIUM
ix.A share of preferred stock pays a quarterly dividend of $1.00. If the price of the stock is $50, what is the effective annual (not nominal) rate of return on the preferred stock?

a.7.88%
b.8.01%
c.8.24%
d.8.47%
e.8.70%

Preferred stock valueAnswer: d
x.Johnston Corporation is growing at a constant rate of 6% per year. The cost of preferred stock (rp) is 8%. The par value of the preferred stock is $120, and the stock has a stated dividend of 10% of par. What is the market value of the preferred stock?

a.$125
b.$120
c.$175
d.$150
e.$200

Constant growth dividendAnswer: d MEDIUM
xi.Wald Inc's stock has a required rate of return of 10%, and it sells for $40 per share. Wald's dividend is expected to grow at a constant rate of 7% per year. What is the expected year-end dividend, D1?

a.$0.90
b.$1.00
c.$1.10
d.$1.20
e.$1.30

Future price of a constant growth stockAnswer: b MEDIUM
xii.Bettis Corp.’s stock price is $20 per share, and its expected year-end dividend is $2 a share (D1 = $2.00). The stock’s required return is 15%, and the dividend is expected to grow at a constant rate forever. What is the expected price of the stock 7 years from now?

a.$27.18
b.$28.14
c.$29.95
d.$30.45
e.$31.81

Corporate valuation modelAnswer: a MEDIUM
xiii.You have been assigned the task of using the corporate valuation model to estimate Meric Corporation's the intrinsic value. Meric’s...
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