FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 9: Stock Valuation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is NOT true about constant-growth stocks?

A) The cash dividend remains constant over time.
B) Mature companies with a history of stable growth show this pattern.
C) The dividends grow at a constant rate from one period to the next forever.
D) Far distant-dividends have a very small present value and add little to the stock's price.

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

Stag Corp. will pay dividends of $4.75, $5.25, $5.75, and $7 for the next four years. Thereafter, the company expects 7 percent growth in dividends. If the required rate of return is 15 percent, what is the current market price of the stock? (Do not round intermediate calculations. Round final answer to two decimal places.)

A) $69.41
B) $93.63
C) $57.54
D) $80.29

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

The constant growth dividend model would be useful to determine the value of all, but which of the following firms?

Kleine Toymakers is introducing a new line of robotic toys, which it expects to grow their earnings at a much faster rate than normal over the next three years. After paying a dividend of $2.00 last year, it does not expect to pay a dividend for the next three years. After that Kleine plans to pay a dividend of $4.00 in year 4 and then increase the dividend at a rate of 10 percent in years 5 and 6. What is the present value of the dividends to be paid out over the next six years if the required rate of return is 15 percent? (Do not round intermediate calculations. Round final answer to two decimal places.)

The market considers preferred stock to be a debt security because the dividend payment is a fixed contractual obligation and has credit ratings like bonds.

Metasteel Limited Co. has a stable sales track record that are not expected to grow in the next several years. Its last annual dividend was $5.75. If the required rate of return on similar investments is 18 percent, what is the current stock price? (Round the answer to two decimal places.)

Which of the following statements is true?

Which of the following is the most typical example of a zero-growth dividend stock?

The National Bank of Columbia has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.40 on this stock. What is the current price of this preferred stock given a required rate of return of 8.5 percent? (Round off to two decimal places.)

Lincoln, Inc. expects to pay no dividends for the next four years. It has projected a growth rate of 35 percent for the next four years. After four years, the firm will grow at a constant rate of 6 percent. Its first dividend to be paid in year 5 will be worth $4.25. If your required rate of return is 20 percent, what is the stock worth today? (Do not round intermediate calculations. Round final answer to two decimal places.)

Which of the following statements is NOT true about broker markets?

Failure to pay a preferred dividend signals to the market that the firm is in serious financial trouble.

The preferred stock of Acme International is selling currently at $110.35. What is the dividend paid by this stock if your required rate of return is 9.75 percent?? (Round off to the two decimal places.)

Dealers are subject to capital risk, because they must finance their inventories of securities.

Whenever the constant-growth rate for dividends exceeds the required rate of return on the common stock, the constant-growth model provides invalid solutions.

Which of the following statements is NOT true about auction markets?

Direct search markets provide the best price information.

In comparison to the NYSE,

Ajax Company has issued perpetual preferred stock with a par of $100 and a dividend of 5.5 percent. If the required rate of return is 7.75 percent, what is the preferred stock's current market price? (Round off to the two decimal places.)