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Exam 6: Common Stock Valuation

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Question 61

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The common stock of JL Recyclers has a required return of 10 percent and a current value of $20.32. The company pays its dividend annually and increases the amount by 3 percent each year. You own 350 shares of this stock. What was the total amount of the last dividend you received?

A) $323
B) $362
C) $432
D) $483
E) $513

F) A) and B)
G) B) and E)

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Question 62

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The arithmetic average dividend growth rate is:

A) the compounded rate of growth over a specified time period.
B) easier to compute than the geometric average dividend growth rate.
C) the summation of the annual dividend growth rates.
D) generally preferred over the geometric average growth rate by most financial analysts.
E) generally larger than the geometric average growth rate when the annual growth rates are positive.

F) All of the above
G) A) and B)

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Question 63

Multiple Choice

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Which one of the following is the most common definition of cash flow as used in the price-cash flow ratio?

The constant perpetual growth model assumes the:

Growth stocks are typically described as having which one of the following characteristics?

Historically, Jones Trucking has had a P/E ratio of 14.6. The firm has current net income of $92,000 with 85,000 shares of stock outstanding. The EPS growth rate is 4.5 percent. What is the expected price of this stock one year from now?

The Shoe Box will not pay a dividend for the next two years. The following two years, it will pay annual dividends of $1 per share. Starting in Year 5, the dividends will increase by 4 percent annually. The discount rate is 8 percent. What is the value of this stock today?

A firm has net income of $198,500 and total equity of 1.15 million. There are 220,000 shares of stock outstanding at a price per share of $14.80. What is the firm's price-earnings ratio?

The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.

A firm has net income of $345,200 and total equity of $2.32 million. There are 430,000 shares of stock outstanding at a price per share of $24.50. What is the firm's price-earnings ratio?

BP Industries stock is valued at $11.50 a share. The firm pays annual dividends at an increasing rate of 3.0 percent annually. Next year's dividend will be $1.15 per share. What is the required return on this stock?

Blue Water Tours just paid an annual dividend of $.80 a share. The firm has a policy of increasing the dividend by 3.5 percent annually. What is the current value of this stock at a discount rate of 11.5 percent?

An increase in the retention ratio will:

Standard, Inc. reported EBIT of $35 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $7 million. Free cash flow is expected to grow at a rate of 6 percent for the foreseeable future. Stuart faces a 21 percent tax rate and has a .40 debt to equity ratio with $120 million (market value) in debt outstanding. Standard's equity beta is 1.25, the risk-free rate is currently 5 percent and the market risk premium is estimated to be 7.5 percent. What is the current value (in millions) of Standard's equity?

The dividend discount model assumes that:

Detroit Imports has a dividend payout ratio of 40 percent and annual dividends of $2.60 per share. What is the retention ratio?