1.6K views

Original Title: Practice Exam Questions on Stock Valuation

Uploaded by Kazelinne Añonuevo

- Chapter10 Test bank in Manegerial Finance
- Stock Valuation - Practice Questions
- 142331715 Questions and Answers
- Ch10 Common Stock
- Chap008 Fundamentals of Corporate Finance
- time value money questions answers
- Bond Valuation - Test Bank 1
- Mock Exam Questions on Risk and Return and Bonds
- Discounted Cash Flow Valuation ch 6
- Time Value of money Test Banks
- The Financial Statements of Banks and Their Principal Competitors
- Equity Valuation
- Chapter 1 Partnership Formation Test banks.docx
- equity valution and analysis
- Multiple Choice Questions
- The Time Value of Money
- Investment in Banking
- Financial Accounting
- FinQuiz - Smart Summary_ Study Session 14_ Reading 50
- VIChallenge-CBB-MatthewKirk

You are on page 1of 6

1. If dividends on a common stock are expected to grow at a constant rate forever, and if you are told the most recent dividend paid, the dividend growth rate, and the appropriate discount rate today, you can calculate: the price of the stock today the dividend that is expected to be paid ten years from now the appropriate discount rate ten years from now I only I and II only I and III only II and III only I, II, and III

I. II. III. a. b. c. d. e.

2. I.

The dividend growth model holds only if the dividend growth rate exceeds the stocks required return. II. An increase in the dividend growth rate will increase a stocks market value, all else the same. III. An increase in the required return on a stock will increase its market value, all else the same. a. I only b. II only c. III only d. I and III only e. I, II, and III

3. a. b. c. d.

Which of the following is false regarding the differences between debt and common stock? Equity is ownership in a firm but debt is not. Stockholders have voting power while creditors usually do not. Periodic payments made to either class of security are tax deductible for the issuer. Interest payments are legally binding while dividend payments generally are not.

4. I. II. III. a. b. c. d. e.

Preferred stock is much like debt in that: The payments on both are tax-deductible to the issuing firm. Neither security is protected in the event of non-payment of promised cash flows. Neither security participates in any unexpected profits the firm generates. I only II only III only I and II only I and III only

5.

What would you pay for a share of ABC Corporation stock today if the dividend one year from now will be $3 per share and you can sell the stock (after you receive the dividend) for $90 a year from today. Assume your required return is 15%. $78.26 $80.87 $82.56 $90.00 $98.12

a. b. c. d. e.

6.

The dividend on Simple Motors common stock will be $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You can sell the stock, after you receive the dividend, for $100 at the end of 3 years. If you require a 12% return on your investment, how much would you be willing to pay for a share of this stock today? $75.45 $77.24 $81.52 $85.66

a. b. c. d.

7. a. b. c. d.

A stock that pays a constant dividend of $1.50 forever currently sells for $10.71. What is the required rate of return? 10% 12% 13% 14%

8. a. b. c. d.

ABC Companys preferred stock is selling for $30 a share. If the required return is 8%, what will the dividend be two years from now? $2.00 $2.20 $2.40 $2.80

9.

What would you pay today for a stock that is expected to make a $2 dividend in one year if the expected dividend growth rate is 5% and you require a 12% return on your investment? $28.57 $29.33 $31.43 $43.14 $54.30

a. b. c. d. e.

10. The stock of MTY Golf World currently sells for $90 per share. The firm has a constant dividend growth rate of 6% and just paid a dividend of $5.09. You are unsure about the stocks required rate of return. What will the stock sell for one year from now? a. b. c. d. e. $ 90.00 $ 93.52 $ 95.40 $ 99.80 $112.78

11. Llanos stock is currently selling for $40.00. The expected dividend one year from now is $2 and the required return is 13%. What is this firms dividend growth rate assuming the constant dividend growth model is appropriate? a. b. c. d. 8% 9% 10% 11%

12. The current price of XYZ stock is $80.00. Dividends are expected to grow at 5% indefinitely and the most recent dividend was $2.75. What is the required rate of return on XYZ stock? a. b. c. d. e. 7.3% 8.6% 9.5% 10.6% 11.2%

13. ABC Corporations common stock dividend yield is 3.61%, it just paid a dividend of $2.75, and is expected to pay a dividend of $2.89 one year from now. Dividends are expected to grow at a constant rate indefinitely. What is the required rate of return on ABC stock? a. b. c. d. e. 7.3% 8.7% 9.5% 10.6% 11.2%

14. Suppose NoGro, Inc. has just issued a dividend of $3.25 per share. Subsequent dividends will remain at $3.25 indefinitely. Returns on the stock of firms like NoGro are currently running 10%. What is the value of one share of stock? a. b. c. d. e $22.50 $27.25 $32.50 $37.25 $39.75

15. Suppose Pale Hose, Inc. has just paid a dividend of $1.80 per share. Sales and profits for Pale Hose are expected to grow at a rate of 8% per year. Its dividend is expected to grow by the same amount. If the required return is 14%, what is the value of a share of Pale Hose? a. b. c. d. e. $18.00 $25.20 $27.80 $30.60 $32.40

16. McGonigals Meats, Inc. currently pays no dividends. The firm plans to begin paying dividends at the end of 3 years from today. The first dividend will be $1.50 and dividends will grow at 6% per year thereafter. Given a required return of 14%, what would you pay for the stock today? a. b. c. d. e $13.42 $14.42 $16.37 $17.61 $21.37

17. McIvers Meals, Inc. currently pays a $2 annual dividend. Investors believe that dividends will grow at 20% next year, 12% annually for the two years after that, and 6% annually thereafter. Assume the required return is 10%. What is the current market price of the stock? a. b. c. d. e $54.90 $60.80 $66.58 $69.30 $75.20

18. The preferred stock of the Limbaugh Institute pays a constant annual dividend of $4 and sells for $50. You believe the stock will sell for $32 in one year. You must, therefore, believe that the required return on the stock will be _ ____ in one year. a. b. c. d. e 8%; higher 8%; lower 1.50%; higher 2.50%; lower 4.50%; higher

19. Biogenetics, Inc. plans to retain and reinvest all of their earnings for the next 30 years. At the end of year 31, the firm will begin a program of paying a $30 per share dividend every year The dividend will not subsequently change. Given a required return of 18%, what should the stock sell for today? a. b. c. d. e $ 1.16 $ 2.09 $ 8.31 $ 82.90 $152.04

20. Boomer Products, Inc. manufactures no-inhale cigarettes. As their target customers age, sales of the product are expected to decline. Thus, demographics suggest that earnings and dividends will decline at a rate of 5% annually forever. The firm just paid a dividend of $4; given a required return of 10%, the stock should sell today for: a. b. c. d. e $10.00 $12.67 $25.33 $28.00 $84.00

ANSWER KEY 1. B 2. B 3. C 4. C 5. B 6. C 7. D 8. C 9. A 10. C 11. A 12. B 13. B 14. C 15. E 16. A 17. C 18. E 19. A 20. C

- Chapter10 Test bank in Manegerial FinanceUploaded byShealalyn1
- Stock Valuation - Practice QuestionsUploaded byKam Yin
- 142331715 Questions and AnswersUploaded byShuhada Shamsuddin
- Ch10 Common StockUploaded byNguyễn Ngọc Anh
- Chap008 Fundamentals of Corporate FinanceUploaded byrunner4peace
- time value money questions answersUploaded byBabar Ali
- Bond Valuation - Test Bank 1Uploaded bydrde321
- Mock Exam Questions on Risk and Return and BondsUploaded byArjinder Singh
- Discounted Cash Flow Valuation ch 6Uploaded byAnonymous j6i4n9edu
- Time Value of money Test BanksUploaded byDebbie Cervancia Dimapilis
- The Financial Statements of Banks and Their Principal CompetitorsUploaded byMahmudur Rahman
- Equity ValuationUploaded byShayne Simora
- Chapter 1 Partnership Formation Test banks.docxUploaded byLizza Marie Casidsid
- equity valution and analysisUploaded byAbhishekMore
- Multiple Choice QuestionsUploaded byAlex Lee
- The Time Value of MoneyUploaded byCarl P
- Investment in BankingUploaded byRaghu Prasad
- Financial AccountingUploaded byNeil Grigg
- FinQuiz - Smart Summary_ Study Session 14_ Reading 50Uploaded byRafael
- VIChallenge-CBB-MatthewKirkUploaded bycurrygoat
- Nism - Series - II - A Registrars and Transfer Agents Corporate Certification Examination April 1 2011Uploaded bycandeva2007
- PARALEL QUIZ - Introduction of AccountingUploaded byCut Farisa Machmud
- Tutorial Computer UnitTrust Exam-EnGLIS 010808Uploaded byMohd Hatif Kamail
- echosUploaded byleafyedge
- Real Final Finance ProjectedUploaded byTariro Roselyn Taruvinga
- finance final2Uploaded byapi-241594273
- Chap 007Uploaded byssregens82
- Investment DecisionUploaded bynrjmarut
- Financial Planning and Forecasting.docUploaded byArfil Sta Ana Yongco
- finance_practice Q.pdfUploaded byMahtab Chondon

- Trading BookUploaded bywaseem1986
- Long Term Capital gainUploaded bysoumyaviyer@gmail.com
- Barclays AAA Handbook.6.2010Uploaded byjohn.gjata6585
- Greeks for European Options MS AccessUploaded byanalystbank
- Chapter06.pdfUploaded byNick Guidry
- Financial Markets Answer KeyUploaded byadn90
- The Impact of Message Traffic Regulatory Restrictions on Market Quality: Evidence from Chi-X CanadaUploaded bytabbforum
- Pfizer JPM May 2014Uploaded byCipto Wibowo
- IntroductionUploaded byjatinder414
- Moly Corp Valuation Study CaseUploaded byRafael Belo
- Solutions DYNAMISUploaded bySambeet Mallick
- Markov Interest Rate Models - Hagan and WoodwardUploaded bylucaliberace
- Lone Wolf Asymmetric Letter Ver 56Uploaded byLonewolf99
- Clyde & Co Tanzania Banking Briefing - January 2018Uploaded byAnonymous iFZbkNw
- Indiabulls and Indian Stock MarketUploaded byaayush batra
- Energy Statistics Energy Statistics 100108Uploaded byKhoa Nguyen Quoc
- Lending ClubUploaded byjason13
- BEARISH SHOOTING STAR.pdfUploaded bySyam Sundar Reddy
- Derivatives 2Uploaded byJenelyn Ubanan
- Critical analysis of northern rock�s failure - Free Finance Essay - Essay UKUploaded byZekria Noori Afghan
- Bikker, J.a. and Spierdijk, L. and Sluis Van Der, P.J. - Market Impact Costs of Institutional Equity Trades (200601)Uploaded byEdwin Hauwert
- Accounting Cheat Sheet FinalsUploaded byRahel Charikar
- Accelerate Investor Deck Mar 2018Uploaded byAIGswap
- J.P. Morgan Reuters RiskMetricsUploaded byolgutza27
- Collateral Support for DerivativesUploaded byitreasurer
- Investment ManagementUploaded bymarife
- AMERICAN INTERNATIONAL GROUPUploaded byTep Raroque
- IandF_CT8_201704_Exam.pdfUploaded byRishabh Agarwal
- ALM Materials EngUploaded byKofi Gyan
- Credit Default SwapsUploaded bypaliacho77