You are on page 1of 101

12.

, An asset characterized by cash flows that increase at a constant rate forever is called a:
A. , Growing perpetuity.
13., The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the:
B. , Dividend growth model.
14., A stock's next expected dividend divided by the current stock price is the:
C. , Dividend yield.
15., The rate at which the stock price is expected to appreciate (or depreciate) is the:
D. , Capital gains yield.
16., Equity without priority for dividends or in the event of bankruptcy is called
E. , Common stock.
17., The term __________ is usually applied to stock that has no special preference either in paying dividends or in bankruptcy.
C. , common stock
18., "Preemptive rights" refers to:
B. , The right of shareholders to share proportionately in any new stock issues sold.
19., Payments made by a corporation to its shareholders, in the form of either cash, stock, or payments in kind, are called:
C. , Dividends.
20., Equity with differential voting rights and/or dividend payment claims is called:
A. , Dual class stock.
21., Equity with priority for dividends and in the event of bankruptcy is called:
D. , Preferred stock.
22., The short alphabetic abbreviation for an exchange-listed stock by which the issue is identified in the market is called the stock's _____________.

D. , Ticker symbol.
23., The voting procedure where shareholders may cast all of their votes for one member of the board is:
B. , Cumulative voting.
24., The voting procedure where shareholders may cast all of their votes for each member of the board is:
C. , Straight voting.
25., The voting procedure where shareholders grant authority to another individual to vote their shares is called:
E. , Proxy voting.
26., A stock whose price can be computed by dividing the annual dividend amount by the required rate of return is called a _______ growth stock.
C. , Zero.
27., Preferred stock is a type of _______ growth stock.
B. , Zero.
28., Given a price at year 5, the dividend in the dividend growth model would be defined as:
E. , The annual dividend in year 6.
29., The capital gains yield as used in the dividend growth model is defined as:
D. , g.
30., The procedure which has the effect of permitting minority participation in voting is called ____ voting.
B. , Cumulative.
31., A cumulative dividend is defined as a dividend that is:
A. , Carried forward as an arrearage if not paid.
32., Which of the following is true of non-voting common stock?
D. , Non-voting shares must receive dividends no lower than dividends on voting shares.
33., The required return is defined as:
A. , The capital gains yield plus the dividend yield.
34., A grant of authority by a shareholder allowing for another individual to vote his/her shares is a _____________.
B. , Proxy.
35., Which of the following is a legitimate reason the valuation of common stock is generally harder than the valuation of bonds?
I. Future cash flows on stocks are not known in advance.
II. Common stocks don't have a maturity date.
III. Common stock valuation is sensitive to estimates of the dividend growth rate.

A. , I only
B. , I and II only
C. , I and III only
D. , II and III only
E. , I, II, and III

36., Which of the following is true about the differences between debt and common stock?

A. , Debt is ownership in a firm but equity is not.
B. , Creditors have voting power while stockholders do not.
C. , Periodic payments made to either class of security are tax deductible for the issuer.
D. , Interest payments are promised while dividend payments are not.
E. , Bondholders can also own equity, but not vice versa.

37., You are considering investing in a firm and wish to place a value on the common stock. The dividend on the firm's stock has not changed in the last five years. Absent any
information suggesting future changes in the dividend rate, the most appropriate stock valuation model would be the ___________ model.

A. , Zero growth.
B. , Supernormal growth.
C. , Non-constant growth.
D. , Growing perpetuity.
E. , Bond pricing.

38., Over the past four years, a company has paid dividends of $1.00, $1.10, $1.20, and $1.30, respectively. This pattern is expected to continue into the future. This is an example
of a company paying a:

A. , Dividend that grows by 10% each year.
B. , Dividend that grows at a constant rate.
C. , Dividend that grows by a decreasing amount.
D. , Dividend that grows at a decreasing rate.
E. , Preferred stock dividend.

39., Dividends on the common stock of Stable Inc. are expected to grow at a constant rate forever. If you are told Stable's most recent dividend paid, its dividend growth rate, and
a discount rate, you can calculate ____________.
I. The price today.
II. The price five years from now.
III. The dividend that is expected to be paid 10 years from now.

A. , I only
B. , I and II only
C. , I and III only
D. , II and III only
E. , I, II, and III

40., Which of the following is (are) true?
I. The dividend growth model only holds if, at some point in time, the dividend growth rate exceeds the stock's required return.
II. A decrease in the dividend growth rate will increase a stock's market value, all else the same.
III. An increase in the required return on a stock will decrease its market value, all else the same.

A. , I only
B. , III only
C. , II and III only
D. , I and III only
E. , I, II, and III

.41. 43. Decrease over time at a rate of r%. C. Given no change in required returns. You are attempting to value a stock in an industry where firms are generating exceptional dividend growth. Of the stock valuation models studied. D. A. . Dividend payout ratio and a required rate of return. B. g = capital gains yield. Decrease over time at a rate equal to the dividend growth rate. B. the price of a stock whose dividend is constant will: A. E. C.. Supernormal growth model. D. Dividend yield and a capital gains yield. A. Capital gains yield and a dividend growth rate. E. The dividend yield on a stock is the annual dividend divided by the par value. As illustrated using the dividend growth model. . The total return on a share of stock = dividend yield + capital gains yield. II. III. Which of the following is (are) true? I.. 42. . Capital gains growth rate and a dividend growth rate. Constant growth model. and III 44. . Dividend yield and the present dividend. Remain unchanged. A. the most appropriate is the _______________. .. . Increase over time at a rate of r%. but this growth is expected to slow to an equilibrium growth rate in about five years. I. . II and III only E. C.. . . Increase over time at a rate equal to the dividend growth rate. Preferred stock model. I and II only D. the total return on a share of common stock is comprised of a ________________. . B. . . . I only B. II only C. Perpetual growth model. . . Perpetuity model. II. When the constant dividend growth model holds. . . E. D. . . .

. Right to vote by proxy. You are attempting to value the shares of a new. The right to vote for directors. . II. . Preference over preferred shareholders in the payment of dividends. I and III only E. D.. . D0 × (1 + g)/(r . The right to share proportionately in remaining assets from a liquidation. Use the zero growth dividend model. .g) II. Right of first refusal to buy new preferred stock. . . when issued. . . 47. . B. . E. C. E. E. Assume the anticipated growth rate in dividends is constant for Fly-By-Nite Airlines. The expected value of the firm's stock at the end of four years (P 4) is: I. D. Find the value by valuing the stock as a perpetuity.. I and II only D. Which of the following is NOT usually a right of a common stockholder? A. . . Not be able to value this company. The right to share proportionately in dividends paid. . II only C. 48. . when paid. I. . B. You would MOST likely: A. and III 46.45. high-technology firm in a developing industry. The right to vote on shareholder matters of great importance. . . . Which of the following common shareholder rights kicks in when a merger is proposed? A. Right to receive proportionate dividends. B. I only B. . Use the growth dividend model.g) A... D. Preemptive right. . C. Right to claim proportionate remaining assets from a liquidation. Use the non-constant growth dividend model. C. P0 × (1 + g)4 III. D5/(r .

50. . B. Preferred stock dividends often represent a tax-advantaged investment for some corporations. I and III only D. C. Preemptive right. which of the following allows you to share proportionately in any new stock sold? A. . C. Which of the following statements about dividends is false? A. . .. Dividends received by both individuals and corporations are fully taxable. B. Straight voting. Dividends paid to shareholders represent a return on the capital directly or indirectly contributed to the corporation by shareholders. A. . B. Preferred stock. . . .. You must own: A. . . II only B. E. . .. II.. III. D. Proxy voting.49. C. II. D. Cumulative dividend stock. The payment of dividends is at the discretion of the board of directors. II and III only E. . I. Payment of dividends is a tax deductible business expense for a corporation. III only C. . Common stock. 51. Debentures. . D. Class B stock. and III 52. . Dual class stock. . Cumulative voting. . . The payment of dividends by the corporation is not a tax-deductible business expense. Which of the following is/are true about common stock dividends? I. Dividends that have been declared but are not yet paid are liabilities of the corporation. . As a common shareholder in a firm. A corporation can be sued for not paying undeclared dividends. . You just voted against a merger proposal made by another corporation. E. E.

. The holders of both get a stated payment in the event of a liquidation . Which of the following is NEVER a right of an owner of a share of preferred stock? I. C. III only C. . Both payments are subject to the same tax treatment for the issuing firm E. Paying for acquisitions. I and II only D. III. I and III only 56.53. . Both can be repaid using a sinking fund C. Both receive a stated payment from the corporation during the year D. . The right to vote for directors. Exchange listing requirements. Often. . A preemptive right E. The right to cumulative dividends C. II and III only E. . The primary reason for creating dual or multiple classes of stock has to do with: A. A. .. . 54. Unequal voting rights D.. . A lower priority in liquidation B. Freezing out minority shareholders. Cumulative voting power 55. . II. Which of the following does NOT correctly complete this sentence: Preferred stock is much like debt in that ______________. . A. E. The right to share proportionately in remaining assets from a liquidation. . Both frequently carry credit ratings B. D. The right to share proportionately in preferred dividends paid. . . . I only B. a firm creates a second class of stock that has ___________ as compared with the first class.. . . Satisfying TSX bylaws. . B. A. . Control of the firm. ..

. Preferred stock is more like common stock than it is like a bond.. Dividend yield. Which of the following would be considered a violation of the rights of one or more classes of a firm's stakeholders? A. Par value. 58. . C. .. D. The price of a stock is greater than the present value of all future dividends. . B. . Arrearage. 59. C. Which of the following typically applies to preferred stock but NOT to common stock? A. D. Common stockholders are able to place members on the board of directors to represent their interests in opposition to the board candidates backed by preferred shareholders. Which of the following is a true statement regarding publicly traded stocks and bonds? A. Stock dividends are a legally-binding liability of the corporation. Common shareholders are able to vote by proxy even when they are unable to attend a shareholders' meeting in person. The right to vote for directors. . . C. . 61. . . E. The dividends are a tax-deductible expense. D. . It is legally considered equity. . E. . A share of preferred stock represents an ownership interest in a corporation. . Common dividends are paid even though preferred dividends are in arrears. . D. . 60. . Cumulative voting.. . The right to share proportionately in remaining assets from a liquidation. B. . . C. . . Which of the following is NOT a right of an owner of a share of common stock? A. E. . Debt is repaid before preferred shareholders are paid anything in a liquidation. D. . E. The right to vote on stockholder matters of great importance.. Dividend yield. C. Which of the following terms is typically associated with BOTH preferred stock and common stock? A. E. . Preference over preferred shareholders in the payment of dividends. Preferred stockholders are paid before common shareholders in a liquidation. . B. Voting rights. A share of preferred stock is generally easier to value than a share of common stock. B. Proxy. B. Cumulative dividends. .57. The right to share proportionately in dividends paid.

Dividend yield. . Closing price. C. . Capital gains rate. differences in the ____________ of the two companies can account for different stock prices. 64. C. 63. . B. . Cumulative preferred stock. D. . you should look for a firm that has ____________. You wish to be on the board of directors of a company. . D. Number of shares traded (volume). . E. Growth opportunities. Cumulative dividends. A. Number of directors. . C. . . If two stocks have the same earnings per share and required rate of return. . . B.. . D. If you wish to buy as low a percentage of the total outstanding shares as is necessary to guarantee yourself a seat on the board.62. C. Convertible debentures. Straight voting. A. Cumulative voting common stock. Cumulative voting Class B stock. E. . B. . . Voting rights.. . 65. E. Which of the following items does NOT usually appear in a National Post common stock quote? A. .. Proxy voting. B. A.. High and low price for the trading day. Value of preferred stock. Number of shares outstanding. . . Cumulative voting. D. E. ____________ can freeze out minority shareholders. . Multiple classes of stock. Straight voting common stock.

.64. . .. D. . E. . Dividends in the future are expected to grow at a constant rate of 3. E.. A supernormal growth stock generally: A. It is more difficult to value a stock than it is to value a bond because: A. D. . . + Dn/(1 + r)n + Pn/(1 + r)n B. has paid annual dividends of $0. Is associated with a company that is experiencing rapid contraction. just paid.g)n 68. The ABC Co. . P0 = D1/(1 + r)n + g D. . and $1... . past. . D. The required market rate of return on a stock is known in advance.45 over the past four years. . B. Last.30. Is valued using the preferred stock valuation technique. $0. P0 = D/r C. E.66. recent. future.. Next. . P0 = D1/(1 + r)1 + D2/(1 + r)2 . . . . Tends to increase its dividends per share by 30% or more for an extended number of years. The future cash flows of a stock are known. current. 69.20. Paid today. P0 = D1/(r . . 67. C. $1. expected. paid today. B. Has high growth dividends only for a limited number of years. . D1 in the dividend growth model is associated with which of the following words when solving for P0? A. B. recent. Has dividends that grow at a high rate for the life of the stock.g) E. C. Just paid. .5%. The life of an equity security is limited. P0 = D1/(r . Equity securities have no maturity date. Which one of the following formulas should be used to compute the value of the stock today? A. . expected. C. . Expected.. recent. The maturity value of a stock is known.

70. . Election of corporate directors II. . Dividends are a tax deductible expense. E. . . E. and III only D. III. I. . P0 will increase. . The supernormal model must be used to value the stock.Chapter 08 #72 Type: Concepts 73. . The dividend amount must also increase. II only C. I and IV only D. Voting common stock. . A.. II. . The stockholders determine the amount of dividend to be paid. Non-voting common stock. Which of the following statements concerning dividends is (are) correct? I. I.. Selection of all senior management executives III. The growth rate must also increase. . I only B. D.. Non-voting preferred stock. Voting preferred stock. B. then: A. If the management of a corporation wants to raise equity capital while maintaining control over the corporation and limiting their cash outflows.. they should issue shares of: A. . . D. . C. III. III. I and III only B. and IV 72. Zero coupon bonds. . II and IV only E. . Which of the following rights are granted to shareholders of common stock? I. . Ross . . The right to share in any remaining assets in a liquidation A. . and IV only E. II. . . I. IV. . 71. I and III only Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The current value of the stock will decrease. II. II and IV only C. If the required rate of return used in the dividend growth model is increased. The option of voting by proxy IV. Dividends become a liability of the corporation at the time they are declared. B. C. Common stock dividends can be either cumulative or non-cumulative.

Cumulative voting is used. C. Right to convert their shares into shares of common stock. . . Common stock is a form of equity while preferred stock is a form of debt from a legal standpoint. . . . D. Obligation to convert their shares into callable shares of common stock. Ross . E. D. Right to convert their shares into cash at par value at their discretion. Voting by proxy is not permitted. B. . It is easier for an outsider to gain control over a corporation when: A. Preferred shares are not convertible. . . Ross . C. . Shareholders of convertible preferred stock generally have the: A. B.Chapter 08 #74 Type: Concepts 75. . . Common shareholders generally have more control over a corporation than preferred shareholders.. E. Ross .Chapter 08 #76 Type: Concepts . Shareholders receive a consistently high rate of return.. Which one of the following statements is correct concerning the differences between preferred and common stock? A. . C. . B. Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. Management controls most of the common shares outstanding. Ross . Common shareholders have first right of priority after creditors in liquidation. Obligation to convert their shares into shares of common stock. Common dividends in arrearage must be paid prior to any additional preferred stock dividends. Right to convert their shares into bonds with an equivalent yield-to-maturity. .Chapter 08 #73 Type: Concepts 74. Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. . E.Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks.. D.Chapter 08 #75 Type: Concepts 76. Preferred shares carry voting rights while common shares do not.

. B. The rate of growth is constant. Ross . E. . D. C. . . . Next year's dividend is the same amount as last year's dividend. The number of seats open times the number of shares owned. E. The valuation is as of the year following the payment of the dividend used in the computation. Ann owns voting shares of ABC common stock. Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . C.. . When subtracted from the dividend yield is equal to the required rate of return. The rate of growth exceeds the required rate of return. . Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. Is the rate at which the price of the stock grows.Chapter 08 #79 Type: Concepts . The number of open seats.77. E. B. . The capital gain yield: A. D.. Is equal to the dividend amount divided by the current market price of the stock. Inc. One-third of the number of shares owned. Is the same as the current yield for shares of common stock. The dividend growth model assumes that: A. If ABC uses cumulative voting. . Three times the number of shares owned multiplied by the number of open seats. B. the maximum number of shares that Ann can vote for any one position is equal to: A. D. . . The number of shares owned.Chapter 08 #77 Type: Concepts 78. C. Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . .Chapter 08 #78 Type: Concepts 79. Ross . There are three seats open on the board of directors of ABC. . The dividend amount used in the formula is the last dividend paid. Must always be a positive value.. .

III. IV. I. Preferred stock is never callable. III and IV only D. Ross . II. Deep Pockets Mining unexpectedly discovered an extremely rich vein of gold. . . . .Chapter 08 #81 Type: Concepts 82. I and II only D. B. . . Preferred stock has a stated liquidation value. Increase the dividend yield as well as the capital gains yield. an increase in dividends will generally: A. Ross . II. . Difficulty: Challenge Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Have no effect on either the capital gains yield or the total return. . Common shareholders A. . . Increase the dividend yield and decrease the current yield. Have no effect on either the total return or the current yield. and III only Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. II.. Decrease the growth rate of the corporation and increase the current yield. Given constant earnings per share. II. D. IV only C. . and IV only E. All preferred stock has an obligatory sinking fund. Ross . III. Convertible preferred shareholders III.Chapter 08 #80 Type: Concepts 81. . III only B.Chapter 08 #82 Type: Concepts .. IV only B. E. Which of the following types of shareholders will benefit from the increased profits that will be generated from this find? I. Which of the following statements is (are) correct concerning preferred stock? I. C. II and IV only C.80. A missed dividend payment never has to be paid if the preferred stock is cumulative. and IV only Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Non-voting common shareholders IV. . . II. I. Preferred shareholders II. III. . A. and IV only E..

83., What would you pay for a share of ABC Corporation stock today if the next dividend will be $2 per share, your required return on equity investments is 12%, and the stock is
expected to be worth $110 one year from now?

A. , $95
B. , $100
C. , $110
D. , $115
E. , $120

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #83
Type: Problems
84., The dividend on Simple Motors common stock will be $2 in one year, $3.50 in two years, and $5.00 in three years. You can sell the stock for $75 in three years. If you require
a 10% return on your investment, how much would you be willing to pay for a share of this stock today?

A. , $59.69
B. , $64.65
C. , $64.82
D. , $65.66
E. , $71.30

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #84
Type: Problems
85., A stock that pays a constant dividend of $2.50 forever currently sells for $21. What is the required rate of return?

A. , 11.0%
B. , 11.5%
C. , 12.0%
D. , 12.5%
E. , 13.0%
F. , Type: Problems

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #85

86., Suppose NoGro, Inc. has just issued a dividend of $2.90 per share. Subsequent dividends will remain at $2.90 indefinitely. Returns on the stock of firms like NoGro are
currently running 15%. What is the value of one share of stock?

A. , $2.90
B. , $13.65
C. , $19.33
D. , $31.25
E. , $39.70

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #86
Type: Problems
87., ABC Company's preferred stock is selling for $25 a share. If the required return is 12%, what will the dividend be two years from now?

A. , $2.39
B. , $2.50
C. , $3.00
D. , $3.30
E. , $3.76

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #87
Type: Problems
88., The preferred stock of the Pearson Institute pays a constant annual dividend of $3 and sells for $21. You believe the stock will sell for $12 in one year. You must, therefore,
believe that the required return on the stock will be ____ % ___________ in one year.

A. , 8; higher
B. , 8; lower
C. , 9; higher
D. , 10; lower
E. , 10; higher

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #88
Type: Problems

89., What would you pay today for a stock that is expected to make a $1.50 dividend in one year if the expected dividend growth rate is 3% and you require a 16% return on your
investment?

A. , $11.54
B. , $12.33
C. , $12.43
D. , $13.14
E. , $14.30

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #89
Type: Problems
90., The stock of MTY Golf World currently sells for $133.75 per share. The firm has a constant dividend growth rate of 7% and just paid a dividend of $6.21. If the required rate
of return is 12%, what will the stock sell for one year from now?

A. , $127.06
B. , $133.75
C. , $143.11
D. , $149.80
E. , $152.78

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #90
Type: Problems
91., Suppose Pale Hose, Inc. has just paid a dividend of $1.40 per share. Sales and profits for Pale Hose are expected to grow at a rate of 5% per year. Its dividend is expected to
grow by the same amount. If the required return is 10%, what is the value of a share of Pale Hose?

A. , $14.00
B. , $15.25
C. , $25.80
D. , $28.00
E. , $29.40

Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #91
Type: Problems

$16.50 and the required return is 10%. .Chapter 08 #94 Type: Problems . manufactures "no-inhale" cigarettes.50. 7% B. $11. $12. . . Inc.. Ross . Boomer Products. . What is this firm's dividend growth rate assuming the constant dividend growth model is appropriate? A. The firm just paid a dividend of $2. Boomer Products. Ross . . . Llano's stock is currently selling for $51. 8% C.. Ross . . the stock should today should sell for: A. . . . $15. the price of the stock in two years will be: A.82 D. $14. .92. given a required return of 12%.Chapter 08 #92 Type: Problems 93. $29.95 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. sales of the product are expected to decline.50 C.Chapter 08 #93 Type: Problems 94. The firm just paid a dividend of $2. Thus. $9.50.25 B. $32. Inc.98 E. . demographics suggest that earnings and dividends will decline at a rate of 4% annually forever. given a required return is 12%. 9% D. manufactures "no-inhale" cigarettes. . demographics suggest that earnings and dividends will decline at a rate of 4% annually forever.00 D. The expected dividend one year from now is $1. .52 C. $10. Thus.. sales of the product are expected to decline. $13. 11% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.50 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .45 B.25 E. As its target customers age and pass on. As its target customers age and pass on. 10% E.

.. Ross . .00% C.25% D. . 5. What is the required rate of return on XYZ stock? A. The most recent dividend was $1.3% D. 9. . Dividends are expected to grow at 7% indefinitely and the most recent dividend was $1.6% E. . . ABC Corporation's common stock dividend yield is 2. 7. it just paid a dividend of $1. 10.00% B.2% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.07 one year from now. ..6% E.00% E. Ross . 10. 11.1% C.1%. 9. Suppose that you have just purchased a share of stock for $22. .1% C. 9. . The current price of XYZ stock is $51. 12.Chapter 08 #97 Type: Problems . 10. .0% B. .3% D.51.Chapter 08 #96 Type: Problems 97. Dividends are expected to grow at a constant rate indefinitely. 13.Chapter 08 #95 Type: Problems 96.50 and dividends are expected to grow at a rate of 5% indefinitely. 9. 9. . What must your required return be on the stock? A. 11. and is expected to pay a dividend of $1.67% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .0% B. . What is the required rate of return on ABC stock? A. Ross . 9. ..95.2% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.

From then on. it is expected that dividends will resume their historical constant growth rate of 5% per year. The first dividend will be $1 and dividends are expected to grow at 5% thereafter. what is the required return on the stock? A. Given a current market price of $55. A.50 per share. The firm plans to begin paying dividends in three years. 5% C. B. 7% E. Ross . $8. $10. McGonigal's Meats. E. . The first dividend will be $2.50 and dividends are expected to grow at 2% thereafter. Killnum Corp. . currently pays no dividends. 4% B. but the firm will begin paying dividends in three years. $10. 6% D. Given a required return of 15%.50 per share rather than the originally expected $1. currently pays no dividends. .29 D.Chapter 08 #99 Type: Problems 100. D. 8% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .50 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . Inc. The price will remain unchanged. Ross . .00 E. The price will likely rise by the present value of $1. $7. . McIntyre's Moats. .. .98.Chapter 08 #100 Type: Problems . The price will likely rise by less than 100%. Ross .. . What would you expect to happen to the price of the stock? Ignore any tax effects. .56 C. Inc. C.Chapter 08 #98 Type: Problems 99. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The price will likely double. what would you pay for the stock today? A. The price will likely rise by exactly 50%. . .18 B. .. announces that the dividend for the next year will be $2. $7.62.

. $2. Assume the required return is 10%. plans to retain and reinvest all of its earnings for the next 30 years.101. McIver's Meals. Given a required return of 15%. the firm will begin to pay a $12 per share dividend. Beginning in year 31. $4.99 C.15 C. The dividend will not subsequently change. Given a required return of 15%. $13.00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Biogenetics. Beginning in year 31. .Chapter 08 #101 Type: Problems 102.64 C. . . What is the current market price of the stock? A.Chapter 08 #103 Type: Problems . $21. Ross .77 B. the firm will begin to pay a $12 per share dividend. . 10% annually for the two years after that. . The dividend will increase at a 6% rate annually thereafter.00 E. what the stock should sell for today? A. Inc.. . $8.21 B. $1. Inc.09 D. $22. . Inc.39 E.45 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.01 D. and 5% annually thereafter. $80. currently pays a $1 annual dividend. $2. $1. .21 B. $26. Investors believe that dividends will grow at 15% next year.65 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $1. . . .13 E. .. $42. $25..15 D. . Ross . Ross . what should the stock sell for today? A.Chapter 08 #102 Type: Problems 103. Biogenetics. . plans to retain and reinvest all of its earnings for the next 30 years. $27.

the firm will begin to pay a dividend of $1 per share.. $14. $29. $28.49 B. Inc. $17.104. $11.. . . If it has the following expected dividend growth rates what should the stock sell for? A.98 C.76 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. the stock should sell for _____ today.75 per share.01 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. which is expected to grow at a 3% rate annually forever. A.15 D.17 C. Dividend growth is expected to match sales growth.49 E. . Ross . $12. .45 B. Beginning in year 4.89 E. The required return on the stock is 15%. Ross . $22. .92 D. . $13. at the end of year 3 the firm will pay a special dividend of $5 per share. . . . is expected to pay a dividend next year of $1. $26.47 B. $16.Chapter 08 #106 Type: Problems . $27. Both sales and profits for Pale Hose are expected to grow at a rate of 15% for the following two years and then at 2% per year thereafter indefinitely. . just paid a dividend of $1. Moore Money Inc. what is the value of a share of Pale Hose? A. $16. . Ross . . If the required return is 14%. . Energistics.Chapter 08 #104 Type: Problems 105.44 C. .27 E.. $18.79 D. $15. Suppose the Pale Hose Corp.68 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.Chapter 08 #105 Type: Problems 106. $19. Given a required return of 12%. . plans to retain and reinvest all of its earnings for the next three years.

's dividend is expected to grow at 6% for the next two years and then at 3% forever. 6.45 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . The current dividend is $1 and the required return is 15%. $9. .Chapter 08 #107 Type: Problems 108. $7. At the end of year 5. 8. At the end of four years the growth rate will drop to a steady 4%.Chapter 08 #108 Type: Problems 109.5% B. Ross . .91 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.58 E. . Ross . If the current dividend is $3 and the required return is 16%. .49 B. Supernormal growth of 5% is expected for the next two years. $7. what is the value of a share of stock? Assume dividends grow at the same rate as earnings after year 4. What constant growth rate is expected beginning in year 3? A.. . If the required return is 16%. . $8.. $27.10 B. Etling Inc. Ross . . CBC stock is expected to sell for $22 two years from now.17 D..5% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . A. $29.4% E. $25.15 D. $26.67 C. 9.Chapter 08 #109 Type: Problems .107. . . 8. $9. $25. what is the price of the stock? A. Suppose that sales and profits of Oly Enterprises are growing at a rate of 30% per year. Oly will issue its first dividend in the amount of $2 per share. .82 C. .1% D.7% C. 6. . .20 E.

000 and rates of return of 10%.Chapter 08 #110 Type: Problems 111.60 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $2. 6.000 per year forever. The stock's dividend yield is 6%. $2. Ltd. Saskatchewan Steel.. . $2. $3. .87 E.001. The stock's dividend yield is 6%..20 E.. $10. . .7% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . Ross .18 B. What is the dividend the firm is expected to pay in one year if the current stock price is $40? A. . $0.50 D.000 E. A. $3. and Alberta Copper. $2.7% B. . .Chapter 08 #111 Type: Problems 112.110. what% yield would be reported in The National Post? A.00 B. A firm's stock has a required return of 10%. . If Russian Motors closed at $22 and the current quarterly dividend is $1.40 C.5% C. $2. $2. .000 per year forever. Inc. 22.1% D. 9. . Ross . Ross . $100. .Chapter 08 #112 Type: Problems 113. . . Both companies have common shares outstanding of 250. What dividend did the firm just pay if the current stock price is $40? A.000 . . . Saskatchewan Steel has a new project that will generate net cash flows of $50.31 C. . $2.60 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The stock price of Saskatchewan Steel should be _______ greater than the stock price of Alberta Steel.. $3. .04 B. $0.25.40 C. both recently announced earnings of $400. $3. Alberta Copper has a new project that will generate net cash flows of $40. . 22.80 D.60 D. 5.2% E. A firm's stock has a required return of 10%.

Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.001 C.0% E. . 141 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. 20. Ross . 40.001 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. . Ross .Chapter 08 #116 Type: Problems .001 D. what percentage of the shares (plus one) do you need to have on your side to guarantee you a seat? A. Four directors will be elected and you wish to be one of them..3% Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. . 0 B. . 16.Chapter 08 #113 Type: Problems 114.. Ross . . 100.001 B. 30.Chapter 08 #114 Type: Problems 115.5% B. A firm has 200. 66. 91 E. 25. Ross . . 50.668 E.000 shares outstanding.Chapter 08 #115 Type: Problems 116. . There are a total of 420 shares outstanding. . . . There is an election being held to fill two seats on the board of directors of a firm in which you hold stock. If three directors will be elected. how many shares do you need to control to assure yourself a seat on the board under cumulative voting procedures? A. 21 D. .. With cumulative voting. . 20 C. . If the election is conducted under cumulative voting and you own 120 shares.7% C. 33. . how many more shares must you buy to be assured of earning a seat on the board? A. . 12.0% D.

. 100 B. . 125. Ross .117. 1. . Big Hat must have closed at _________ per share on the previous trading day. .50 Difficulty: Basic Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting. 250.000 E. . . you can cast as many as _____________ votes for a single director. Your firm is converting from cumulative voting to straight voting.Chapter 08 #118 Type: Problems . A.000 shares outstanding and that three directors go up for election at a time. Ross . Two directors are to be elected. .000 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. . . Suppose you own 500 shares of Biogen common stock. 750 E. $98.000 C. 250. A.. $98. . 25. 0 B.Chapter 08 #119 Type: Problems . Ross . You currently own the minimum number of shares needed to assure yourself a seat on the board in any election under cumulative voting.. .000 D.38 B. .88 D.001 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. $99.13 E. $98. . How many more shares must you purchase in order to assure yourself a seat under straight voting? Assume there are a total of 500. 500 D. Ross . $97.. .26 C. . A.Chapter 08 #117 Type: Problems 118. Since the firm uses cumulative voting. 250 C.Chapter 08 119.

Chapter 08 #122 Type: Problems 123.092 C. 20. $8. .Chapter 08 #120 Type: Problems 121. Based on the quote. the number of Big Hat shares that changed hands was: A. . $1.250 E.. $9. .29 C.16 B.76 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.9% C. $3. . . .092. . 209. .4% B. $4. $2. .10 B. Ross . $1. .120. 8.8% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.. .40 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.10 E. the expected dividend per share is: A. $6. . For the current year. $1. Assume the expected growth rate in dividends is 7%. Ross . 209 B. . 2. 9. On this trading day. . a good estimate of EPS over the last four quarters is: A.13 D.0% D.. .30 C.925 D.500 . . ..Chapter 08 #121 Type: Problems 122.32 D. 7. 7.4% E. . 2. 8. $0. Then the constant growth model suggests that the required return on Big Hat stock is: A. . . Ross .45 E.

12. Ross . . 26. Ross . 1. Ross .Chapter 08 #125 Type: Problems 126. Cannot tell without more information Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.7% C. Ross .. . . Ross . .. . . .Difficulty: Basic Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting.12 annual dividend in the previous period. What is the required return on the stock? A.Chapter 08 #126 Type: Problems .15% D. . Undervalued C.. 16.Chapter 08 #123 Type: Problems .7% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. 16. . .07% E.7% E. 22. Also assume that dividends are expected to grow at a constant rate of 25% for the foreseeable future. Assume that Big Hat is selling at its equilibrium price. .29% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.Chapter 08 124. What is the dividend growth rate based on this quote? A. or fairly priced? A. which is expected to remain constant for the foreseeable future. . 18. Is the stock currently overvalued. Assume that Big Hat paid a $1. 24. .16% B.20% C. You believe that the required return on Big Hat stock is 12% and that the expected dividend growth rate is 10%. Fairly priced D.1% D. 24. undervalued.Chapter 08 #124 Type: Problems 125.5% B. . Overvalued B. 14.

15% D.59% C. The price of Bradley Broadcasting stock today should be: A. Bradley Broadcasting expects to pay dividends of $1. How much is Bradley's stock price expected to increase during the first year? A. What is growth rate of the Bradley Broadcasting dividend during year 2? A. 25% E. 20% D. After that.Chapter 08 127.48 B. and $1. 6..Chapter 08 #128 Type: Problems 129. 50% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $19. . . $20. 4. . . $22. Ross . 10% B. $21.Chapter 08 #129 Type: Problems .33 D.56 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . .. . . $1. Stocks of similar risk yield 10%.331 in one. . dividends are expected to grow at a constant rate of 4% forever. Ross . 1.51% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.Chapter 08 #127 Type: Problems 128.21. respectively. Ross . 6. and three years. $18. 15% C. 5.05% B. . .46 E.12 C. . . .. .10. two. Ross ..24% E.

$14. It has been increasing its dividends by 4% annually and is expected to continue doing so. $15. Ross .130. 4% C. 10% E.71 D. 3% B. . Ross . Ross . . . . $19. . What is expected capital gains yield on Bradley Broadcasting stock during year 8? A. $9.. $17. Inc. Alhandro.40 B. . . The Johnson Company just paid an annual dividend of $1. .. $16. just paid an annual dividend of $1..Chapter 08 #132 Type: Problems . . . . 14% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $15.Chapter 08 #130 Type: Problems 131.38 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.33 C.21 E.30 E. $14.91 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . $18.Chapter 08 #131 Type: Problems 132. $9. How much would you be willing to pay for one share of Johnson Company stock if the dividend remains constant and you require a 9% rate of return? A.03. How much can it expect to receive for each new share of stock offered if investors require an 11% rate of return? A.36 B. . .60. . 9% D.78 D.74 C.

Ross .02% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The MIKO Corp.81 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . is expected to pay the following annual dividends for the next three years: $1.63 C. . it is expected to increase its dividends by 3% annually. Ross . . and $1.20 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.32 per share. What is the rate of return on MIKO stock? A. The KLS Co.69 B.Chapter 08 #134 Type: Problems 135. Ross . $22.94% E.. .Chapter 08 #135 Type: Problems .Chapter 08 #133 Type: Problems 134. Stocks similar to KLS are yielding 9. .60. The Brown Company just announced that it will be increasing its annual dividend to $1. respectively. . . $23. $19.35 B.68 D.01% B. Currently. . . $27.13 E. . $1. MIKO stock is priced at $21. What is one share of KLS worth today? A.50.5% annually.. . 5. paid $0. It has just announced that it expects to increase its dividends by 2% each year for the foreseeable future.86% D.30 E.87 C. 4.05 D. $27. . . 4.133.84 in dividends last year. . $29. 5. ..68 next year and that future dividends will be increased by 2. $18.96% C. 6. $17. After that time.00. How much would you be willing to pay for one share of the Brown Company stock if you require a 12% rate of return? A. $14.5%. $14.

Ross . .64 a share and produce a total return of 14. .93 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.87 E.27% B.25% over the prior year. The annual dividends of Blue Dye have been increasing at a rate of 2. $87.. 16. $123. Inc.Chapter 08 #138 Type: Problems . Ross . The par value of the preferred stock is $100. Swanson Brothers expects to pay a $2.17% E. 14. 17.50 B.87 E.29 D.136. What is the rate of return on Swanson stock? A. dividends are projected to grow at a steady rate of 2. . After next year.80 per share.41 D. 16. . $98. has some 8% preferred stock outstanding. $1. . $2. $1.Chapter 08 #136 Type: Problems 137. What is the expected amount of the next dividend? A.Chapter 08 #137 Type: Problems 138. Ross . Inc.5%. .66% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . are currently priced at $23. $114.14 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . 23.91 C. .4% and are expected to continue at this rate. Shares of Swanson stock are currently selling at $15. . Shares of Blue Dye. . $125. $2.42% C. .77% D.80%.37 B. Morris. $2... . How much are you willing to pay for one share of Morris preferred stock if you require a 7% rate of return? A. .20 dividend next year which is an increase of 3.11 C.

36 E. . After that. is expecting to pay $1. $9. $15. $13. $15.5% annually.84 E. . .Chapter 08 #139 Type: Problems 140. is a high growth firm that has never paid a dividend.00 E. . .14 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. MDK.14 Difficulty: Challenge Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.139.12 B.77 C. What is the expected price per share of MDK stock six years from now? A. Noshima Industries issued dividends totaling $0. . $9. $17.60 last year. . How much is Andy willing to pay today for one share of Mahenterin Inc.13 in annual dividends for the next three years respectively. .99. $14. Inc. The required rate of return on this stock is 15%. $17. it expects dividends to increase by 50% annually and then remain constant thereafter.Chapter 08 #141 Type: Problems . $17.. . $16. $17. How much is one share of Noshima Industries stock worth today if you require a 9% rate of return? A. .04 C. . . .35 D.23. Ross . Ross . .45 B.31 D. $0. $13.59 D. it projects that dividends will increase by 1. $12.42 C.34. For the next two years.81 Difficulty: Challenge Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. It also stated that dividends are expected to increase by 40% a year for each of the following four years and then increase by 4% annually thereafter..90 B. .. stock? A. $14. Andy is in the 25% marginal tax bracket and wants to earn 6% after-tax on his investments. Mahenterin Inc. The company just issued a press release stating that next year it plans on paying an annual dividend of $0. and $1. $12.Chapter 08 #140 Type: Problems 141. Ross .

10. 8.52 Difficulty: Intermediate Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting. $0.142. . .05% D. If Michael's wishes to sell some new preferred stock at par.45 C.Chapter 08 #144 Type: Problems 145. what rate should it assign to the new shares? A. What is the dividend yield? A.73% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $0.94% B.Chapter 08 #143 Type: Problems 144.24% D. .19% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.8% C. The newspaper shows a P/E of 23 and a dividend of $1. ...9% D.. . Ross . 9. . $0. 7.94% E.Chapter 08 #142 Type: Problems 143. What is the amount of the current dividend? A. .63 and Yld% 1.49 E. The daily newspaper lists this information on a stock: Last $36. has earnings per share of $1.3% . .76% B. 9% preferred stock is currently priced at $124.00% E.30.44 B.39 for shares of ABC. . Net Chg -1. Michael's Inc. 4. stock. 3. .24% C. 4. . . 8. Jamie just paid $8.2% E.3. 6.6% B. 713. . $0. Inc. 3. ABC. What rate of return will she earn? A. ..47 D. . 4.28% C. . Ross . Ross .19. 7. . 3.239 for 100 shares of 6% preferred stock. . 11.44. . $0. . Inc.

.15% B. .67 a share. The stock paid a dividend last year of $1. .27% D. . 8.80% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . Ross . .. 7.Chapter 08 #146 Type: Problems 147.Difficulty: Intermediate Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting. What is the current dividend yield today? A. . The stock closed today at par.80 per share. . 7.48 annual dividend which has remained constant for five years.Chapter 08 #145 Type: Problems 146. . 7.72% C. 9.80 a share. Ross . 16. 8. . What is the current dividend yield? A.. An 8% preferred stock closed yesterday at a price of $91.41% B.10. 1. Ross .50% C. 1.00% D. What is the capital gains yield on LJK stock? A. The price today was down $2.Chapter 08 #148 Type: Problems . 1.. ABC pays a $0.Chapter 08 #147 Type: Problems 148. Ross .32. .31% E.31% B. . ABC stock closed yesterday at a price of $39. 1.33% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. 1. Leon's required rate of return is 13% on this type of investment.94% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.06% D.76% E. 8. 13.000 shares of LJK stock this morning at a price of $45. Leon purchased 1.21% C. .85% E. . 8. .

. while Teri owns 300 shares and Lucie owns 500 shares. 126 D. . 411 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. .Chapter 08 #151 Type: Problems .. Marcy owns 100 shares of Dee's Inc. Ross . 376 E. 0 B.149. . 151 D. . With cumulative voting. 10% are owned by Jeff. 25% are owned by Jason and the rest are owned by Edward.. . . 251 C. . while Teri owns 300 shares and Lucie owns 500 shares. . 351 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. how many additional shares will Marcy have to buy from Terri or Lucie to guarantee that she will be elected to the board? A. 298 D. 0 B. Alpha uses straight voting. There are 1. Ross . 201 E. how many additional shares will Marcy have to buy from Teri or Lucie to guarantee that she will be elected to the board? A. . 63 C. . . There are currently three seats open on the board of directors. 256 E.Chapter 08 #149 Type: Problems 150.500 shares of Alpha stock outstanding. Jason wants to be positive that he can be elected to one of these positions. Marcy owns 100 shares of Dee's Inc. .. Twenty% of the shares are owned by Midge. 351 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. There are 900 shares outstanding. 30% are owned by Peter. With straight voting. There are 5 seats open on the board of directors of Alpha. .Chapter 08 #150 Type: Problems 151. . Inc. 1 C. There are 900 shares outstanding. How many additional shares of stock must Jason buy to ensure that he wins a seat? A. Ross . There are currently three seats open on the board of directors. 0 B.

Ross . Jackson Supply has 2. 834 D. . 12% E.500 shares of stock outstanding. . . .Chapter 08 #153 Type: Problems 154.152. There are three positions open on the board of directors. 56 C. Twenty% of the shares are owned by Midge. 626 C. How many additional shares of stock must Jason buy to ensure that he wins a seat? A. 1250 E. . 25% are owned by Jason and the rest are owned by Edward.. . Ross . Jason wants to be positive that he can be elected to one of these positions. 1251 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks.. stock and has an expected return of 8% on this investment. 4% C. .20 in dividends last year.Chapter 08 #154 Type: Problems . . 10% are owned by Jeff. . . The Battery Co.00 a share for Battery Co.. . 116 D. There are 5 seats open on the board of directors of Alpha. Amy wants to be elected to one of those positions. What is the growth rate of the Battery Co. Margaret paid a price of $15. 376 Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. Alpha uses cumulative voting. Inc. 8% D. . paid $1.500 shares of Alpha stock outstanding. . 16% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. There are 1. 30% are owned by Peter. Ross . 0% B. How many more shares must Amy own to guarantee her election if Jackson Supply uses straight voting as opposed to cumulative voting? A. . 0 B.Chapter 08 #152 Type: Problems 153. . 251 E. stock? A. 625 B.

.Chapter 08 #155 Type: Definitions 156. C. An asset characterized by cash flows that increase at a constant rate forever is called a: A. Ross . perpetuity due. D. Next year's annual dividend divided by the current stock price is called the: A. . capital gains yield. . Ross . .. growing annuity. . . B. . .Chapter 08 #156 Type: Definitions 157. preferred stock. . Ross . .Chapter 08 #157 Type: Definitions 158. dividend yield. earnings . capital pricing D. dividend growth C. zero growth B. E. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . D. C. total C.. earnings yield. A. dividend D. . . . Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. earnings capitalization E.155. . 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. The rate at which a stock's price is expected to appreciate (or depreciate) is called the _____ yield. .. discounted dividend Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. current B. . growing perpetuity. capital gains E. . common annuity. . total yield. A. . E. yield to maturity. B..

.Chapter 08 #159 Type: Definitions 160. preferred stock Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . cumulative C. .Chapter 08 #160 Type: Definitions 161. dual class B. proxy D. . . common stock E. A. preferred E. . debenture C. Ross . A _____ is a form of equity security that has a stated liquidating value. A. .. A form of equity which receives preferential treatment in the payment of dividends is called _____ stock. . . Ross . . preferred E. deferred D.Chapter 08 #161 Type: Definitions . dual class B. Ross . A form of equity which receives no preferential treatment in either the payment of dividends or in bankruptcy distributions is called _____ stock. . . common Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. common Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth... A. . bond B.Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. deferred D. Ross . cumulative C.Chapter 08 #158 Type: Definitions 159. . .

pays an annual dividend of $1. is valued as if the dividend paid is a perpetuity. democratic B.162.Chapter 08 #164 Type: Concepts .00. A. The voting procedure where you must own 50% plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called _____ voting. B. C. This dividend amount has been constant for the past 15 years and is expected to remain constant. one share of James River Co. pays a constant annual dividend. proxy Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. Ross . decrease when the market rate of return increases. . deferred E. has a market value equal to the present value of $1. . B. . The James River Co. D.50 per share on its common stock. D..50 paid one year from today. is valued with an assumed growth rate of 3%. E. increase over time. Thus. is basically worthless as it offers no growth potential. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . . Given this.Chapter 08 #162 Type: Definitions 163. . .. decrease over time. stock: A. . the market price of Kenwith stock will: A. has a market value of $15.. E.Chapter 08 #163 Type: Concepts 164. increase when the market rate of return increases. cumulative C. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . . . The common stock of the Kenwith Co. straight D. Ross . Ross . also remain constant. . . C.

Given this. D. currently pays an annual dividend of $1. . the same amount as any other stock that pays the same current dividend and has the same required rate of return. can be used to compute a stock price at any point of time. stock is greater than the _____ of the Keyser Co.165. market price B. the same amount to every investor regardless of their desired rate of return. IV. I and II only E.Chapter 08 #165 Type: Concepts 166. III and IV only D. . total return. . an amount computed as the next annual dividend divided by the market rate of return.00 and plans on increasing its dividend by 3% annually. Ross . II only C. rate of capital gain D. states that the market price of a stock is only affected by the amount of the dividend. The Keyser Co.Chapter 08 #166 Type: Concepts 167. the present value of the future income which the stock generates. . total return E.. . currently pays an annual dividend of $1. I. Ross . The underlying assumption of the dividend growth model is that a stock is worth: A. capital gains. A. C. . assumes that dividends increase at a constant rate forever.. . E. stock. The Koster Co.Chapter 08 #167 Type: Concepts . . III. dividend yield Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .. . Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . and III only Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. B. . dividend yield. considers capital gains but ignores the dividend yield. II. rate of capital gain. dividend yield C. . market price. The dividend growth model: I. II. an amount computed as the next annual dividend divided by the required rate of return. A. . . it can be stated with certainty that the _____ of the Koster Co. I only B.00 and plans on increasing that amount by 5% each year. Ross .

.30 over the next 6 years. .25 a share and then increasing that amount by 3% annually thereafter. The first step in computing the value of this stock today. . market values of all stocks to decrease. 7 E. After that. 6 D. $. The company plans on retaining all of its earnings for the next six years. respectively. 5 C.168.Chapter 08 #168 Type: Concepts 169. B. Latcher's Inc. 4. Ross . Ross . the company projects paying an annual dividend of $. To value this stock as of today. C. 3. E. Ross . Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . market values of all stocks to increase. Assume that you are using the dividend growth model to value stocks. . A. If you expect the market rate of return to increase across the board on all equity securities. . Seven years from now. . . 6. . $0.. C. . dividend growth rates to increase to offset this change. currently pays no dividend. . all else constant.Chapter 08 #169 Type: Concepts 170. $0. stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.. is a relatively new firm that is still in a period of rapid development. 5.10. market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate. 8 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . you would most likely determine the value of the stock _____ years from today before determining today's value. 4 B. the company anticipates increasing the dividend by 4% annually. 7. is to compute the value of the stock in year: A. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .20. $. all else constant.Chapter 08 #170 Type: Concepts . and $. then you should also expect the: A. . E.. The Robert Phillips Co. D. D. B. The company is anticipating dividends of $0.

supernormal growth. . . The total rate of return earned on a stock is comprised of which two of the following? I.Chapter 08 #172 Type: Concepts 173. . real rate of return. $. . . interest yield. C.10 a year. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. III and IV only Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. capital appreciation.. . II and IV only E. a rate which is most likely not sustainable over an extended period of time. . an amount in excess of $. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.Chapter 08 #171 Type: Concepts 172. C. . I and II only B. dividend yield IV.. . .Chapter 08 #173 Type: Concepts . . I and IV only C. Ross . . current yield II. D. E. . three or more% per year. . The total rate of return on a stock can be positive even when the price of the stock depreciates because of the: A. dividend yield. E.. Supernormal growth refers to a firm that increases its dividend by: A. Ross .10 or more per year. Ross . D. B. B. a constant rate of 2 or more% per year. capital gains yield A. .171. II and III only D. yield to maturity III.

Chapter 08 #176 Type: Concepts . II only D. Which one of the following correctly defines the dividend growth model? A. Ross . I and III only C. Shareholders generally have the right to: I. . R = (D1 P0) + g E. P0 = D0 (R . A. . . Fred Flintlock wants to earn a total of 10% on his investments. increase by 10% E. He recently purchased shares of ABC stock at a price of $20 a share. A. . III and IV only Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. II. . The price of ABC stock needs to _____ if Fred is to achieve his 10% rate of return. . increase by 15% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . IV. remain constant B.g) C. . Ross . elect the chief operating officer (COO). elect the corporate directors. I only B. I and II only E..Chapter 08 #174 Type: Concepts 175.. .174. . .Chapter 08 #175 Type: Concepts 176. . III. Ross . . P0 = (D1 R) + g Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. increase by 5% D. The stock pays a $1 a year dividend..g) B. select the senior management of the firm. decrease by 5% C. R = (P0 D0) + g D. . D = P0 × (R . elect the chief executive officer (CEO).

Inc. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. . .. total loss of power for you since you are a minority shareholder. ABC Co. You do not own enough shares to control the elections but are determined to oust the current leadership. will be able to elect at least one director as long as there are at least three open positions and the shareholder owns at least 25% plus one of the outstanding shares. . . will control the elections. C. regardless of the number of shares owned. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. . the company is voting to elect two new directors. C.000 shareholders and is preparing to elect three new board members. If straight voting applies. If straight voting is used. Ross . regardless of the number of shares owned. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. Beta. Which one of the following statements must be true given this information? A. . proxy fight for control of the firm. . Jack is assured one seat on the board. Jack can control both open seats. E.. If cumulative voting applies. Ross . D. B. . Ross . Regardless of the type of voting employed. The Zilo Corp. is owned by a group of shareholders. . must own at least two-thirds of the shares. all of whom vote independently and all of whom want personal control over the firm. C.Chapter 08 #177 Type: Concepts 178. Jack owns 35 shares of stock in Beta. . who owns more shares than anyone else. . arbitrated settlement whereby you are granted control over one of the three open positions. Inc. to exercise control over the elections.Chapter 08 #178 Type: Concepts 179. . must either own enough shares to totally control the elections or else he/she has no control whatsoever. Jack does not own enough shares to control any of the seats. plus one. The most likely result of this situation is a: A. B.. D.177. Jack can control both open seats. has 1. and wants to exercise as much control as possible over the company. a shareholder: A. is only permitted to elect one director. B. . legal battle for control of the firm based on your discontent as an individual shareholder. If straight voting applies. E. Each share receives one vote. D. E. negotiated settlement where you are granted control over one of the three open positions.Chapter 08 #179 Type: Concepts . Jack is assured one seat on the board. Presently. . If cumulative voting applies. . has a total of 100 shares of stock outstanding.

vote on proposed mergers.. and IV only E. . I and II only B.Chapter 08 #181 Type: Concepts 182. . .000 shares of stock outstanding. D. is obligated to continue paying $1 per share per year. Ross . and IV Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. .. II. B. IV. . share in company profits. Ross . II and III only C.000 for dividends payable. III. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. III. reduce the taxable income of the corporation. . . will be declared in default and can face bankruptcy if it does not pay $1 per year to each shareholder on a timely basis. . III. . C. I and IV only C. are declared by the chief financial officer of the corporation. The firm has 1. A. vote for company directors..Chapter 08 #180 Type: Concepts 181. I. has a general dividend policy whereby it pays a constant annual dividend of $1 per share of common stock. I. to an individual becomes taxable income of that individual. . The Scott Co. . . I. . II. I only B. II.180. .Chapter 08 #182 Type: Concepts . . II. must always show a current liability of $1. and IV only E. II and III only D. Common stock shareholders are generally granted rights which include the right to: I. I and IV only D. and IV only Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . The dividends paid by a corporation: I. to another corporation may or may not represent taxable income to the recipient. has a liability which must be paid at a later date should the company miss paying an annual dividend payment. A. The company: A. must still declare each dividend before it becomes an actual company liability. IV. I. II. E. III. residual assets in a liquidation.

B. C. Ross . . . . is entitled to a distribution of income prior to the common shareholders. $10 D. . $3 B. each share of 5% preferred stock is generally entitled to a liquidation payment of _____ as long as there are sufficient funds available. A.183. Which one of the following statements concerning preferred stock is correct? A. Preferred dividends must be paid timely each quarter or the unpaid dividends start accruing interest. E. $100 . All unpaid dividends on preferred stock. has the right to declare the company bankrupt whenever there are insufficient funds to pay dividends to the common shareholders.Chapter 08 #184 Type: Concepts 185. receives tax-free dividends if it is an individual and own more than 20% of the outstanding preferred shares. D. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. . . B. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. E. . D.. . In a liquidation. .Chapter 08 #183 Type: Concepts 184... $50 E. Ross . $12 D. . A. . $5 C. $60 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Preferred shareholders may be granted voting rights and seats on the board if preferred dividend payments remain unpaid. The owner of preferred stock: A. .. $6 C. must be paid before any income can be distributed to common shareholders. . . $30 E. $1 B. Ross . . Preferred dividends must be paid quarterly provided the firm has net income that exceeds the amount of the quarterly dividend. . The par value of the preferred stock is $100. Unpaid preferred dividends are a liability of the firm. The par value of the preferred stock is $100. has the right to veto the outcome of an election held by the common shareholders. regardless of the type of preferred. . has the right to collect payment on any unpaid dividends as long as the stock is noncumulative preferred. . . C. .Chapter 08 #185 Type: Concepts 186. A 6% preferred stock pays _____ a year in dividends per share.

A dealer will buy the stock at $22. $36. III and IV only E.Chapter 08 #189 Type: Problems . . First. $34. .0142. . II. I and II only B. . $21. The closing price on the previous day was $1. which one of the following statements is correct? A.Chapter 08 #186 Type: Concepts 187.87. . A stock listing contains the following information: P/E 17.Chapter 08 #187 Type: Concepts 188.5.87 and sell it at $26 a share.00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Based on this information.42 higher than today's closing price. The closing price of a stock is quoted at 22. . The stock increased in value between yesterday's close and today's close by $. Secondly. I and III only C.50. The earnings per share are equal to 1/26th of $22.42. Ross . .62 E.80. Which of the following statements are correct given this information? I. the company announced that its next annual dividend has been set at $2. I. and a net chg of -. with a P/E of 26 and a net change of 1.5%. D. A.42 this year. B. Ross . $22. . C. Angelina's made two announcements concerning its common stock today.. $27.16 a share.Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. III. . What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10% rate of return? A. II and III only D. and IV only Difficulty: Basic Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting. . The current yield is 17. The earnings per share have increased by $1.Chapter 08 #188 Type: Concepts 189.. dividend .4% during the current year.. Ross . YTD% chg 3. Difficulty: Basic Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting.4.60. The closing price on the previous trading day was $32. IV. The earnings per share are approximately $1. E. the company announced that all future dividends will increase by 4% annually.87.60 B. Ross . The stock price has increased by 3.10. .44 D. .46 C. III. .89. . . closing price 33.

Chapter 08 #190 Type: Problems 191.63 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The company just paid a $2 a year dividend. ..190. the dividends increase by 4% annually and you require an 8% rate of return? A. Ross . . $19.00 per share annual dividend last week. .11 D. $20. .000 shares of this stock next year.50 C. How much are you willing to pay for one share of stock if the company just paid a $. . If you are planning on buying 1.25 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Majestic Homes stock traditionally provides an 8% rate of return. . . .60 B.23 B.13 D. . $52.14 B. which is expected to increase by 5% per year.89 E. $70. 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. Dividends are expected to increase by 5% annually. $11. . Ross .. $57. Lee Hong Imports paid a $1. $12. $55. $20. .80 annual dividend.Chapter 08 #192 Type: Problems .80 E. . Ross . .00 C.40 D.Chapter 08 #191 Type: Problems 192. $20. .50 C. $11. ..00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $7. $48. $7. What is one share of this stock worth to you today if the appropriate discount rate is 14%? A. $21.67 E.

00 a share over the past three years. $18.07% C. What is the market rate of return? A. . 21. you will only buy this stock if you can earn at least a 15% rate of return. 6. . The stock is currently selling for $62. $1.75. This dividend increases at an average rate of 3. respectively.10 dividend. 16. $16. The current yield on Alpha's common stock is 4. Mathilda's Vineyard recently paid a $3. 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.5% B.. 5.00 B. 3. The dividend growth rate is expected to remain constant at the current level.94% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The rumour is that the dividend will be $2.. $13. What is the required rate of return on Alpha's stock? A.5% D. . . Ross . and $2. .193. . . . . 43. The company just paid a $2.04% B. .00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Martin's Yachts has paid annual dividends of $1. $20.0% E.5% per year.Chapter 08 #194 Type: Problems 195.Chapter 08 #193 Type: Problems 194.40.8%. What is the maximum amount you are willing to pay to buy one share of this stock today? A.60 annual dividend on its common stock.5% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .Chapter 08 #195 Type: Problems .88 E.33 C. 9.67 D. . Ross .205 next year. 2. Ross .5% C. $10. . 45.75% E. .88% D. . 10.10 a share..

00% C. .. What is the expected amount of the next dividend to be paid on Energizer's common stock? A. 1. What is the market rate of return if this stock is currently selling for $22 a share? A.Chapter 08 #198 Type: Problems . .90 B. $1. . $1. 11.50% B.5% B. . .. Ross . . .5% E. $.5%. What was the rate of price appreciation on the stock? A. returned an 11.42 a share and that all future dividends are expected to increase by 2. . The common stock of Grady Co.0% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.00 C. Ross . Bet'R Bilt Bikes just announced that its annual dividend for this coming year will be $2. 12. 15. .25% E. .5% D. .0% C. 11. 9.75% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. 9.5% annually.Chapter 08 #196 Type: Problems 197. . . . 8. $1.196.75% D. 12.Chapter 08 #197 Type: Problems 198.10 D. Ross . . The common stock of Energizer's pays an annual dividend that is expected to increase by 10% annually. 13..21 E.33 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $1.50 a share.70 a share which equated to a dividend yield of 1. The dividend amount was $. The stock commands a market rate of return of 12% and sells for $60.25% rate of return last year.

.90 a share.Chapter 08 #200 Type: Problems 201. .93 C.07 E.04 D. $29. $1.. $. . $1. . . You have decided that you would like to own some shares of GH Corp. A stock pays a constant annual dividend and sells for $31.40 E. $32. $2.11 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $1. what is the dividend amount? A.50 annual dividend per share? A.17 C. .Chapter 08 #199 Type: Problems 200. $26. Ross . What will its dividend be in six years? A. $1. has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3% annually.90 B.80 C. $36. .Chapter 08 #201 Type: Problems .67 D.59 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.199. . $2. . . $. Ross . $2.40 B. Ross . $34.11 a share. .. The Reading Co. . If the rate of return on this stock is 9%.04 B.80 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.29 E.20 D. but need an expected 12% rate of return to compensate for the perceived risk of such ownership. The last dividend it paid was $0. . What is the maximum you are willing to spend per share to buy GH stock if the company pays a constant $3. .. $1. .

Ross . 5.20 annual dividend.3% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.20.681 C. .79 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.. 5. 5. $1. Ross . A. just announced that it is increasing its annual dividend to $1. . . $22. $1. .810 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.5% C. 6. The company just paid its annual dividend of $1.9% D.60 B.766 E. .723 D. . What is the rate of growth of its dividend? A. Ross . .36 C.Chapter 08 #204 Type: Problems .60 and establishing a policy whereby the dividend will increase by 3. .640 B. . $1. how much should you expect to pay for 100 shares when you can afford to buy this stock? Ignore trading costs.5% annually. How much will one share of this stock be worth five years from now if the required rate of return is 12%? A.2% B. $23..202. $1.5%. $23. $24. The company has a policy whereby the dividend increases by 2. Wilbert's Clothing Stores just paid a $1.Chapter 08 #202 Type: Problems 203. 6.14 D.. .95 E. . The Merriweather Co.0% E.86 a share at a market rate of return of 9. . $21. . Turnips and Parsley common stock sells for $39.5% annually thereafter. $1. . .Chapter 08 #203 Type: Problems 204. You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another three years. If you desire a 10% rate of return.

After that.06 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.50. .20 B. $26. common stock are currently selling for $27. . $29. respectively.88 D. 5. Shares of the Katydid Co. .04 B..00. . $7.73. $17. last paid a $1. $7.205. $33. and $5. 14.00. . The company is planning on paying $3. Ross . $21.00% C. . 13. .25 per share indefinitely.48 C.00 a share over the next four years.57 D..39 C.00. The market rate of return is 10%.50 per share annual dividend.Chapter 08 #206 Type: Problems 207.Chapter 08 #207 Type: Problems . .71 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. It is going to pay $1.05% E..Chapter 08 #205 Type: Problems 206. respectively. $2. What is the market price of this stock if the market rate of return is 15%? A. . $25. $14. Can't Hold Me Back. After that the dividend will be a constant $2. $22.91% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. 2. Ross . The Extreme Reaches Corp. 4. .00 a share over the next three years. . $18. .50% B. Inc.98% D. and $10. At what rate is the dividend growing? A.78 E. What is this stock worth to you per share if you demand a 7% rate of return? A. .50. Ross . is preparing to pay its first dividends. the company has stated that the annual dividend will be $1.50 per share per year. The last dividend paid was $1.60 per share. .08 E. $5. .

Chapter 08 #208 Type: Problems 209.Chapter 08 #209 Type: Problems 210. . is in a downsizing mode.. $1.21 D. . the dividend is expected to increase by 2% annually. Bill Bailey and Sons pays no dividend at the present time. Future dividends are projected at $1. Ross . $5.50 a year.Chapter 08 #210 Type: Problems . $19.57 C.18.08 C. . the company will cease all dividends permanently. Now or Later.25 C.50 annual dividend last year. recently paid $1. $4. and $1. $3.39 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Beginning five years from now.46 E. .39 D. Once the dividend amount becomes zero. What is one share of this stock worth to you today? A. $1. . $5. $5. . $5.14. After that time. Inc. .25 over the next four years.208. $5.13 E. $15. $23.82 B. $25.98 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The Lighthouse Co.87 D. $5. . What is one share of this stock worth to you if you require an 8% rate of return on similar investments? A. the company plans on paying a constant $1 a share dividend indefinitely.30 a share for two years commencing two years from today. . . $21. The company has announced plans to lower the dividend by $.76 B. $4. $4. You place a required rate of return of 16% on this particular stock given the company's situation. .. .62 B.10 as an annual dividend. .22. respectively. . Ross . Ross . The company paid a $2.58 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. How much are you willing to pay to buy a share of this stock if your required return is 14%? A..33 E. . The company plans to start paying an annual dividend in the amount of $.

. Inc. What is one share of this stock worth today if the market rate of return on similar securities is 11. $37. . . The projected dividends for the next five years are $. the company is repurchasing all of the outstanding shares at a price of $50 a share. it is planning on paying a constant $1. After that time.. $20. $. $43. Ross . . . Five years from now.18 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . the dividends will be held constant at $1. The company plans to double each annual dividend payment for the next three years.41 B. $48.43 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.00 a share dividend every other year. BC 'n D just paid its annual dividend of $. . $11. The firm pays a $2.46 D. . Ross .09 E. $11.. The last dividend was paid last year. $21. $53. $21.00. $12.50 per share indefinitely. $34.60 C.Chapter 08 #213 Type: Problems . and $1.60 a share. $11. . Beaksley.20. After that time. what is this stock worth today? A. .43 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $1.21 C.48 B. .03 B. .40 C. Mother and Daughter Enterprises is a relatively new firm that appears to be on the road to great success. is a very cyclical type of business which is reflected in its dividend policy.5%? A.50. What is this stock worth today at a 6% discount rate? A. $21.28 a share.40.30. At an 8% rate of return. respectively.Chapter 08 #212 Type: Problems 213.78 D. . Ross ..75.211. $20.93 E.02 D.Chapter 08 #211 Type: Problems 212. .28 E. $. The company paid its first annual dividend yesterday in the amount of $. . $9.

is expecting a period of intense growth.80 D. . .22 C. Last year. . . $9. After that it will maintain a constant dividend of $.22 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.70 a share. Thus. is expecting its ice cream sales to decline due to the increased interest in healthy eating. $21.22 E. After that..64 D. so it has decided to retain more of its earnings to help finance that growth. Ross . Ross .214. it will maintain a constant dividend of $1 a share. .22 D.23 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. What is this stock worth to you if you require a 9% rate of return? A. .40 per share. $11. the company has announced that it will be reducing its annual dividend by 5% a year for the next two years. $24.80 per share. . $22.00 a share.00 C. . $11. Ross . As a result it is going to reduce its annual dividend by 10% a year for the next three years. What price should Butterup's expect to receive per share for this stock offering? A. $8.Chapter 08 #216 Type: Problems .86 B. $14. the company paid $1.11 C.Chapter 08 #215 Type: Problems 216. The company has determined that stocks with similar characteristics provide a 9% rate of return. . $6. The Double Dip Co.87 E. . .. $10. . $8. Nu-Tek. $20. the company paid $1.01 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $7.Chapter 08 #214 Type: Problems 215. Butterup's 'N More wants to offer some preferred stock that pays an annual dividend of $2. . . $18.79 B. .98 E..35 B. Inc. Last year. What is the market value of this stock if the required rate of return is 13%? A. $12.

. 11. Ross . . C. .95% B. Inc.. .Chapter 08 #217 Type: Problems 218. . .50 C. .50 E. The stock is currently priced at $45.00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. who owns preferred stock can cast his or her votes for candidates for the board of directors.00 D. .60 a share. $3.90% E. .15 C. . $39. $40. 5. .Chapter 08 #219 Type: Problems 220. . Ross . $3.17% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Inc. can revote until a majority of the votes are cast for one candidate for each seat on the board of directors. can authorize another party to vote on his or her behalf. You want to earn a 12% rate of return.. 8. . . $3. 14.Chapter 08 #218 Type: Problems 219. . preferred stock which he says provides him with a constant 6.50 annual dividend. What is the maximum price you are willing to pay for one share of this stock? A.00 B. Jim owns shares of Abco. casts one vote per share of stock owned for each open position on the board of directors. 7.. $3. The preferred stock of North Coast Shoreline pays an annual dividend of $1.70 and sells for $20.24 a share. .08% C. $37. . Panco. E. may cast all of his or her votes for one candidate for the board of directors. $32.217.50 B. What is the amount of the dividend per share? A. $3.50 D. $45. . B. .40% D..62 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. D.54 E. . Ross . preferred stock pays a $4. . Cumulative voting is the procedure whereby a shareholder: A.58% rate of return. What is the rate of return on this security? A.

Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. straight B. . C. shareholder B. A.50 a share annual dividend. proxy E. The market price of this stock will: A. . ... Martin Industries pays a constant $2. Ross . decrease if the required return increases. cumulative D.. be greater five years from now than it is today provided that the market rate of return remains constant. Ross . preemptive Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. The right which grants you the ability to maintain your current level of ownership should the company opt to issue additional shares of stock is called the _____ right. . . . distance D. . remain constant even as the market rate of return varies. you own 5% of the common stock of Alberta Industries. first E. You are unable to physically attend the meeting but would like your votes cast so your opinion counts. increase when the market rate of return increases. . . You own 100 shares of XY Corporation.Chapter 08 #220 Type: Definitions 221. . Ross . Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. D.Chapter 08 #222 Type: Definitions 223. percentage C. Ross . . cumulative C. democratic Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. .Chapter 08 #223 Type: Concepts . The procedure by which you can cast your votes without attending the meeting is called _____ voting.Chapter 08 #221 Type: Definitions 222. . Currently. . E. B. A. . remain constant as long as the dividend remains constant. There are several key items which will be voted on at the next board meeting.

$1. . A. . . B. can be used to value all common stocks. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . respectively. All else constant. C. .. After that.. II and III only Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . . . I only B. The dividend growth model: A. is independent of an investor's required rate of return.75 per share each year. an increase in the stock price IV. values a stock based solely on the rate of dividend growth. you should first determine the value of the stock at the end of year _____. cannot be used to value zero growth dividend stocks.Chapter 08 #225 Type: Concepts 226. . .224. . Ross . 4 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . I and IV only E. . D. E. considers both the dividend yield and the capital gains yield. Charlie's plans to pay a constant dividend of $1. which of the following will increase the dividend yield of a stock? I. 1 C. 3 E. a decrease in the stock price A. Charlie's Fish Market is planning on paying annual dividends of $1.Chapter 08 #224 Type: Concepts 225. and $1.50 over the next 3 years.20. an increase in the dividend amount II. a decrease in the dividend amount III. . III only D. 2 D. To compute the value of Charlie's stock today. 0 B. .. II only C. Ross .35.Chapter 08 #226 Type: Concepts .

yield to maturity B. 167. . The company has 3 open seats on the board of directors. . The dividend yield on a common stock is most similar to which yield on a bond? A. market yield E. . 1/2 C. If Samson uses cumulative voting.. .500 Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. . Carlos owns 500 shares of Samson Timber. Dino wishes to be elected to the board but realizes that no one else will vote for him. Ross . coupon yield D.500 plus 1 of the shares if the firm uses cumulative voting. A. . 1/3rd B. Everson Importers has 1. yield to call C.Chapter 08 #229 Type: Concepts . 500..Chapter 08 #227 Type: Definitions 228.500. 1/4th Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. 1/2 D. . 167 C. . Dino will have to own _____ of 1. there are 3 open seats on the board of directors. . To guarantee his election. 500 E. 1. 167 B.500 shares of common stock outstanding of which Dino owns 500 shares. 1/3rd E. 1. 1/4th. Ross . A. .. .500.227. 1/2. 1/3rd.Chapter 08 #228 Type: Concepts 229. . 500. Ross . . 1. This year.500 plus 1 of the shares if the firm uses straight voting versus owning _____ of 1. 500 D. 1/2. current yield Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Carlos will receive a total of _____ votes of which he can cast a maximum of _____ votes for one candidate. . 1/4th. .

must be paid in cash. . D. .. $28. Preferred shareholders are generally granted the right to: A. C. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . . $29. E.03 D. Ross . Common stockholders have the right to: A.Chapter 08 #232 Type: Concepts 233.. . C. .230.97 C.84 . B. If you require an 11% rate of return. D. $28. . . .. In conjunction with the payment. collect prior dividends which were unpaid provided that the stock is noncumulative. receive dividends prior to the cumulative preferred shareholders. Ross .. how much are you willing to pay today to purchase one share of Thomas' stock? A. . B. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. vote for the vice-presidents of the firm. first priority for any dividend distributions. . A. . receive dividends prior to the holders of noncumulative preferred stock. Ross .Chapter 08 #231 Type: Concepts 232. receive payment prior to the creditors in a liquidation. vote on any proposed acquisition or merger. $29. are a tax deductible expense to the corporation. D.25. Thomas & Sons just paid an annual dividend of $2. .Chapter 08 #230 Type: Concepts 231. Dividends on common stock: A. vote for the members of the board of directors. E. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. the company announced that future dividends will be increasing by 3%.13 B. . C. B. . receive a dividend prior to interest being paid on outstanding debt. are considered in default if the board fails to declare them at least once per year. . . . . must be declared to become a liability of the firm. $29. E. are automatically paid every three months. vote on any proposed merger or acquisition.29 E.G.

the company announced that the next annual dividend has been set at $3.Chapter 08 #233 Type: Problems 234.83 D. . . $8.75 C.50 per share annual dividend last week. the company announced that all future dividends after that will increase by 2% annually. . Secondly. . .Chapter 08 #235 Type: Problems 236. the dividends increase by 4% annually. Ross . . .81 D. $19.50 E.28 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.09 B.20 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $16. How much are you willing to pay today for one share of stock if the company just paid a $1. What is one share of this stock worth to you today if the appropriate discount rate is 12%? A.20 a share. . $18. . . $18. $20. $9.40 annual dividend.75 D. What is the maximum amount you should pay today to purchase one share of Baker's stock if your goal is to earn a 9% rate of return? A. $9. . .38 B.Chapter 08 #236 Type: Problems . $29.10 C..67 C.. and you require a 12% rate of return? A.71 E.. .63 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $46. China Imports paid a $1. Ross . $44. Dividends are expected to increase by 4% annually. $9. . Ross . $29. Baker Foods made two announcements concerning its common stock today.50 E. Ross .Chapter 08 #234 Type: Problems 235. $45.Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $17.75 B. . First.

Jessica's Home Interiors offers a common stock that pays an annual dividend of $1. $17.70 D.24 C. .. $18.Chapter 08 #239 Type: Problems .29 B.78 D.16 E. $18.56 C. . The company has promised to maintain a constant dividend. you will only buy this stock if you can earn at least a 16% rate of return. $13. . What is the maximum amount you are willing to pay to buy one share of this stock today? A. Ross . 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.70.66 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross .85 a share over the past three years. how much should you expect to pay per share if the market rate of return for this type of security is 13. . This dividend is expected to increase by 3% per year. .97 B. .05 D.41 E.5% at the time of your purchase? A. . . $9. .60 annual dividend. . $17. .60 a share. $16. Given the lack of future growth. respectively.Chapter 08 #237 Type: Problems 238. . . $15. $12.97 C. $15.34 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth..Chapter 08 #238 Type: Problems 239. Ross .55.. Treynor Industries has paid annual dividends of $1.000 shares of this stock one year from now. Uptown Homes just paid a $1. $16. $18. . .237. If you are planning on buying 1. and $1.78 B. $1. $11.54 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. How much are you willing to pay for one share of this stock today if you want to earn a 9% return on your investments? A. $13.17 E. $10.

30 a share. .67% C. 6.5% annually and expects to continue doing so.'s has established a pattern of increasing its dividends by 3.11% B. . The common stock of J.Chapter 08 #242 Type: Problems . The stock is currently selling for $70. 6. .80% B. . 7. K.80.94% E. .. J. 10. 6. . 10. Ross . Ross . . .6%. What is the required rate of return on Zeta's stock? A.. .240. What is the market rate of return? A. Ross . 7..03% D. The company pays a constant dividend of $1. 5.40% E.51% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.11% E. This dividend increases at an average rate of 4% per year. .44% B.88% D.40 annual dividend on its common stock. The stock is expected to pay $2.Chapter 08 #241 Type: Problems 242. . K. . 10.60 a share. 6.77% D. 7. .10 per share next month when the annual dividend is distributed. . The current yield on Zeta's common stock is 5. 5. What is the market rate of return on this stock? A. 3.Chapter 08 #240 Type: Problems 241.51% C. 6. West Coast Wines recently paid a $4.65% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.29% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.60% C. 9. . Laminates sells for $32.

6. just announced that its annual dividend for this coming year will be $1.6% E. . 5.6% rate of return last year. .00% B. 14. 10.. 15. . Inc. . . . The dividend amount was $1.Chapter 08 #244 Type: Problems 245. The dividend is increasing at a constant 6% per year. What is the market rate of return if this stock is currently selling for $28 a share? A.10 a share which equated to a dividend yield of 2.8% E.3% C. . What was the rate of price appreciation on the stock? A. .6% C. 9. 6. 10. 9.5% annually. . . .73% B.0% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.93% E. 8. .Chapter 08 #243 Type: Problems 244.0% D. . Ross .. 9. 5.Chapter 08 #245 Type: Problems . 10. Ross . Ross . . .243.0% B. offer an expected total return of 16%. What is the capital gain yield? A. Mountain Gear. Shares of common stock of the Timken Co.2%.12% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.23% C.50% D.. 16.38% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The common stock of Filmore Brands returned a 12.4% D.40 a share and that all future dividends are expected to increase by 4. 10.

$1. $1.21 E.56 E. .Chapter 08 #248 Type: Problems . $2. ..54 D. .15 D.26 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.95 B. The last dividend it paid was $1. . $1. $2.71 D.. The stock commands a market rate of return of 11% and sells for $54.59 C. $2. The market rate of return on this stock is 10%.05 C. Ross . What is the amount of the last dividend paid by F & D? A.56 B. $2. . . The common stock of Singer Machines pays an annual dividend that is expected to increase by 6% annually. $2..84 E. . $1. $2.58 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross .5% annually.Chapter 08 #247 Type: Problems 248. What is the expected amount of the next dividend? A. . F & D Industry's common stock sells for $43. $2. What will its dividend be 7 years from now? A.20 a share. $1. $2. . . .44 B.Chapter 08 #246 Type: Problems 247. Ross .05 a share and pays an annual dividend that increases by 5% annually. . Redline Motors has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3. . .49 C. $2. .246. $1.87 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.21 a share.

$17.00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . . Hilltop Markets will pay an annual dividend of $2. The total return is 11. . $77. Deltona Homes common stock sells for $52. . 7.10.75 E. Last year.249.97 C. . $16. What is the maximum you are willing to spend today to buy one share of M&M stock if the company pays a constant $3 annual dividend per share? A. .. The company adheres to a constant rate of growth dividend policy.67 E. 6. Ross .Chapter 08 #249 Type: Problems 250. .3%. $18. Ross . .03% C. . the company paid a dividend of $2. $79. The company just paid their annual dividend of $2.30 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.08% D. 7. What is the dividend growth rate? A.31% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $20. 7. .Chapter 08 #251 Type: Problems . $15..57% B. 7.73 a share on its common stock next week. $78. You have decided that you would like to own some shares of Martin & Miller (M&M) but need an expected 15% rate of return to compensate for the perceived risk of such ownership.. .60 a share. $79. .25 C.27% E.43 B.00 D. $81.50 D.00 B. What will one share of B&K common stock be worth 5 years from now if the applicable discount rate is 9.Chapter 08 #250 Type: Problems 251. . .5%? A. .64 a share. .

The last annual dividend paid was $2.25% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. At what rate is the dividend growing? A.47 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.25 per share.. If you desire a 12% rate of return. $4. .252.06% D.225 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $39. $3.Chapter 08 #253 Type: Problems 254. Ross .44 E. The market rate of return is 14%. $40.50 a share. Master Technicians just announced that it is increasing its annual dividend to $4 and establishing a policy whereby the dividend will increase by 2% annually thereafter. 7. . Shares of Bleckwell Remodelers common stock are currently selling for $32... 6. .885 D. 7. Peterson Nurseries just paid a $3. .110 E. . $4. 6. how much should you expect to pay for 100 shares when you can afford to buy this stock? A.62% B. . . .63 C.84% C. Ross . . The company has a policy whereby the dividend increases by 3% annually. 7. . $40. . $3. $41. $3.Chapter 08 #252 Type: Problems 253.Chapter 08 #254 Type: Problems . You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another two years. Ross .13% E. . How much will one share of this stock be worth 10 years from now if the required rate of return is 14%? A. .772 C.67 D.468 B. . . $41.20 annual dividend.83 B.

255..08 B.45 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $16. $12. $1.65 C. . It is going to pay $. $17.26 D.Chapter 08 #256 Type: Problems 257. Kettle Korn. . the company has stated that the annual dividend will be $1. Massey Motors is a new firm in a rapidly growing industry. $12. and $1.10.98 per share indefinitely. . . After that. What is the current value of one share of this stock if the required rate of return is 13.25 per share per year.60. $12. . just paid a $1.11 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. and $2. The company just paid its annual dividend in the amount of $1.50.08 D. $1.40 per share annual dividend.. $18. $12. $1. .60 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . What is this stock worth to you per share if you demand a 9% rate of return? A. After that. $16. . $19. $19.62 E.. the dividend will be a constant $2. . Ross . respectively.00 per share. What is the market price of this stock if the market rate of return is 12%? A.19 E.47 B. The company is planning on increasing its annual dividend by 10% a year for the next 3 years and then decreasing the growth rate to 4% per year.37 E.65.50 a share over the next 3 years. $12. Inc. .67 D. Ross .08 C. .75%? A. $20.21 C. . The Sister's Market is preparing to pay its first dividends.22 B. Ross . $15. $18. The company is planning on paying $1.Chapter 08 #257 Type: Problems . . $17.Chapter 08 #255 Type: Problems 256.90. . .00 a share over the next 4 years. respectively.

Chapter 08 #258 Type: Problems 259.30.40 a share. $2. $2. $11. How much are you willing to pay to buy one share of this stock today if your desired rate of return is 10%? A. dividends are projected to increase by 2% per year. Rosebud Florists pays a constant dividend of $1.70 B. $10. $32. $11. The first dividend will be paid next year in the amount of $. What is one share of this stock worth today if the required rate of return is 7.Chapter 08 #260 Type: Problems . Beginning four years from now. .86 E. and $1.85..00 B.258. $2. . . . $32.69 D. $34. and $2. . Ross . $.14 D. After that. . Winter Green Decors announced today that it will begin paying annual dividends.. Berkshire Homes recently paid $2. Future dividends are projected at $2.. .50. $11.Chapter 08 #259 Type: Problems 260. The company announced today that it will continue to do this for another 2 years after which time it will discontinue paying dividends permanently. .23 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.50 a share.60. respectively. $2. $34. .52 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . .89 C. .17 E. What is one share of this stock worth to you today if you require an 11% rate of return? A. . .00 a share annually for the following 3 years. $2. respectively. The following dividends will be $. .20 as an annual dividend.5%? A.45 B.55 C. $3.96 C.79 E.75 over the next 3 years.11 D. . $35.00 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. the dividend is expected to increase by 3% annually. Ross . $10.

$12.47 C. . After that time. .261.45 D.83 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. ... the company plans on paying a constant $1 a share dividend indefinitely. the company will cease all dividends permanently.84 E. Main Street Tool & Die is in a downsizing mode.Chapter 08 #261 Type: Problems 262. . $2.99 C. . J&J Tools pays no dividend at the present time.72 B. . Ross . .Chapter 08 #263 Type: Problems . $12.. $6. $12. . What is one share of this stock worth to you today? A. .Chapter 08 #262 Type: Problems 263.5%? A. . .29 B. The company has announced plans to lower the dividend by $. The company plans to double each annual dividend payment for the next 2 years. $4.50 a year.44 C. How much are you willing to pay to buy a share of this stock if your required return is 13%? A. What is one share of this stock worth today if the market rate of return on similar securities is 14.92 E. The company plans to start paying an annual dividend in the amount of $.87 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.25 a share for 3 years commencing next year. $5. Ross .35 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. it is planning on paying a constant $2 per share indefinitely. $4. Daily Movers is a relatively new firm.68 D. The company paid a $2 annual dividend last year. After the 3 years. The company paid its first annual dividend yesterday in the amount of $.17 B. $2. $5.68 D. $12. . $2.72 E. $12. Ross . . $2. You place a required rate of return of 18% on this particular stock given the company's situation. . . $2.40 a share. Once the dividend amount becomes zero.

62 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $4. $6. $4. How much are you willing to pay to purchase stock in this company if your required rate of return is 15%? A.50 per share. What is the market value of this stock if the required rate of return is 14%? A. .79 B. $27.Chapter 08 #264 Type: Problems 265. Last year. $49.. the company paid $2 per share.32 D. After that. Confectioners' Corner wants to offer some preferred stock that pays an annual dividend of $4. $15. . Ross . The company has determined that stocks with similar characteristics provide an 11% rate of return.93 E. $4.. . . . it will maintain a constant dividend of $. Ross . The company has been reducing the dividends by 10% each year.264. $5. $45. As a result. .Chapter 08 #265 Type: Problems 266.30 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $3. N&M Railroad paid its annual dividend of $1. Ross . . Thus.50 a share.Chapter 08 #266 Type: Problems .01 C. $40.50 E. .60 D.00 C. What price should Confectioner's expect to receive per share for this stock offering? A.50 a share.. .91 D.50 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.87 B.00 E. $40.54 C. the company has decided to retain more of its earnings to help finance the growth. the company is going to reduce the annual dividend by 25% a year for the next 2 years. .40 B. . Nu Electronics is expecting a period of intense growth. . $5. . $38. . $30. . Last week.

What is the amount of the dividend per share? A. . . ..64 C. . 13.10 a share.79 to its shareholders as the annual dividend.5% rate of return.00 B. $4..25 C. .52 E. . . What is the rate of return on this security? A. .20 a share.43 D. . how much are you willing to pay to purchase one share of this stock? A.50% D. Simultaneously.69% C.267. . The stock is currently priced at $42. The preferred stock of Deep South Pies pays an annual dividend of $1.50 E. which she says provides her with a constant 9. 9.40 and sells for $18. Allison owns shares of Bakewell preferred stock.61 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.Chapter 08 #267 Type: Problems 268. Ross . $20.5% rate of return. $4.08 D.33% E. $24. 7. the company announced that future dividends will be increasing by 3.31 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . 10.Chapter 08 #268 Type: Problems 269.67% B. . $17. Gerold's Travel Service just paid $1. . Ross . $25. If you require a 10. . .00% Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $4.2%.. .59 B. 6. $4. $24.Chapter 08 #269 Type: Problems . $4.

. Secondly. . $15. $15. . $20.270. Jessica's Pharmacy made two announcements concerning their common stock today.5% annually.52 C.58 E. Ross .. . and you require a 14% rate of return? A. $16.61 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . $17. How much are you willing to pay for one share of Delphia stock if the company just paid a $1. the dividends increase by 2. $12.. $13. the company announced the next annual dividend will be $1.34 annual dividend.30 D. $12.8% annually.23 D.Chapter 08 #272 Type: Problems .96 C. .84 B. What is the maximum amount you should pay to purchase a share of this stock if your goal is to earn a 12% rate of return? A.Chapter 08 #271 Type: Problems 272. . Ross . $9. $11.84 B. .60 per share annual dividend last week. $12. $19. $13.48 a share. . . . $19. Textile Importers paid a $1.59 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.27 D. .33 B.87 E. $12. Dividends are expected to increase by 4% annually.Chapter 08 #270 Type: Problems 271.5%? A. .97 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth..64 C. What is one share of this stock worth to you today if your required rate of return is 13. First. all dividends after that will increase by 2. . Ross .99 E. .

57 E. $80. $30.20 D. $32. . Elegante Homes stock traditionally provides a 16% rate of return.00 E. The company just paid an annual dividend of $3..273. $28. .07 C. $31.55 B. How much are you willing to pay for one share of this stock if you want to earn a 9% return on your equity investments? A. 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. $24. The Good Life offers a common stock that pays an annual dividend of $2 a share.22 C. The company has promised to maintain a constant dividend. . $67.22 B.20 a share and is expected to increase that amount by 5% per year.14 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $26.20 Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .67 D.000 shares of this stock next year. . If you are planning to buy 1. . Ross . $88. .. . . . $22. Ross .Chapter 08 #273 Type: Problems 274.Chapter 08 #274 Type: Problems .

60. 7. $3. 4. The stock is expected to pay $1.60 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.48.05 E. Given the lack of future growth. .275. 6. What is the maximum amount you are willing to pay for one share of this stock today? A. 4. The company just paid a $1.47% E. . . .43 D. 7. and $0. Ross . $4. Ross ..72% B. The dividend growth rate is expected to remain constant at the current level. you will only buy this stock if you can earn at least a 14% rate of return. $0. .29 C. . $5. 7.08% C.5% annually and expects to continue doing so. What is the required rate of return on this stock? A. 7. 3.Chapter 08 #275 Type: Problems 276. .Chapter 08 #277 Type: Problems .6%.Chapter 08 #276 Type: Problems 277. Ross .05% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . .69% D..41% B.59% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.80 dividend and plans to pay $1. What is the market rate of return on this stock? A.62 a share over the past three years. 4. The current yield on Martin's Mills common stock is 3.. BJ's has established a pattern of increasing their dividends by 2. . respectively. . . . 5.93% E. $5. $4.38% D. .86 next year.90 per share next month when the annual dividend is distributed. 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. The Row Boat has paid annual dividends of $.97% C.43 B. The common stock of BJ's Auto Clinic sells for $38.25 a share. .

0% Dividend yield = .24 = 24. What is the market rate of return? A.5% E. .70% B. 5.Chapter 08 #279 Type: Problems 280..60% C. Ross .0% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. What is the dividend yield? A. The stock is currently selling for $80.63% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.6% g = .8%. Ross .. 18.65 a share.0% C. .43% C.67% D.2% per year. 12. The dividend is increasing at a constant 4.6%. . . 24.41% E. 5.2% per year. Ross .6% rate of return last year.6% B. 9. . This dividend increases at an average rate of 4.042 = 9.2% D.40 a share which equated to a dividend yield of 0.278. . . What was the rate of price appreciation for the year? A. Lake Shore Vineyards recently paid a $4. The dividend amount was $0. 30. Shares of common stock of the Windy Farms offer an expected total return of 13. 18.Chapter 08 #280 Type: Problems . .6% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . 8.. The common stock of Jesup's returned a nifty 24. .138 . . 15. 9.21% B.2% E. . .. 9.Chapter 08 #278 Type: Problems 279..006 = . 5.6% D. 25. . 24. .246 .20 annual dividend on their common stock.

Ross .75% annually.19 B. . ..94 C. The firm is paying an annual dividend of $1. RTF. You have decided you would like to own some shares of the Clean Coal Company but need a 16% rate of return to compensate for the perceived risk of such ownership.. $22. . $1. What will the dividend be five years from now? A. Ross .60 E. .281.Chapter 08 #281 Type: Problems 282.69 D. $1. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $1. . .88 B. .10 today. . The market rate of return on this stock is 8.10 × (1. $1.32 D.81 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.Chapter 08 #282 Type: Problems 283..32 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.27 C. $1. $0. $12. $18.00 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.8% annually. $0. common stock sells for $22 a share and pays an annual dividend that increases by 3. What is the amount of the last dividend paid? A.97 E. . Ross .45 D5 = $1. $0. Inc. . $9. .0375)5 = $1.16 B. $0. .90 C. $1.75 annual dividend per share? A. $1. . .2%.93 D. $10.37 E. The Home Market has adopted a policy of increasing the annual dividend on their common stock at a constant rate of 3. .Chapter 08 #283 Type: Problems .

$56. $42. 5.6%. 5.00 B. . .83 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.. . $71.Chapter 08 #284 Type: Problems 285.82% D. 8. .41 E.. 8.15 a share on their common stock next week.09% E.284. . Ross . $65.42 per share.Chapter 08 #285 Type: Problems .16 D. What is the dividend growth rate? A. . 7. The company adheres to a constant rate of growth dividend policy. .00 a share.73% C. Ross . the company paid a dividend of $3. $68.78 C.5%? A.70 a share and has a market rate of return of 11.14% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. . . The company just paid an annual dividend of $1. What will one share of this common stock be worth ten years from now if the applicable discount rate is 12. The Herb Garden common stock sells for $43. .32% B. KB Adventures will pay an annual dividend of $3. Last year.

$16. Franktown Meats just announced that they are increasing the annual dividend to $1. $14.77 E. . You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another two years. .674 E.759 Purchase cost = 100 × $49.75 and establishing a policy whereby the dividend will increase by 2% annually thereafter.5%? A. . $15.949 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .84 D.49 = $4.Chapter 08 #286 Type: Problems 287. how much will you be willing to pay for the 100 shares when you can afford to make this investment? A. .400 B.00 B. . $4... $14. $4. The company has a policy of increasing the dividend by 4% annually. $4.949 C.Chapter 08 #287 Type: Problems . .576 D. $4. . How much will one share of this stock be worth six years from now if the required rate of return is 14. Ross . $4.08 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.40 annual dividend. If you require a 14% rate of return. . . Tom's Health Clinic just paid a $4.28 C. Ross .286. $14.

10. . Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $14.Chapter 08 #288 Type: Problems 289. . . and $1. The company is planning on increasing its annual dividend by 25% a year for the next three years and then decreasing the growth rate to 6% per year. The company just paid its annual dividend in the amount of $0. . At what rate is the dividend growing? A.73% C. . . .5625.80 per share. Ross . 11.17 B.8%. Cellular Talk is a new firm in a rapidly growing industry.25. The last dividend paid was $2.69% B.90. $12.Chapter 08 #289 Type: Problems . Ross . .94 D. $1. $12.27 E. 11.59% D. . .00.21 per share and the market rate of return is 15. $11. $15. What is the current value of one share of this stock if the required rate of return is 17%? A..09% E. 9. 7.39% Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Shares of Do Naught common stock are currently selling for $46.288.06 Dividends for the next 3 years are: $1.14 C..

$7. $5.50.Chapter 08 #290 Type: Problems 291. $24.00 a share over the next four years. . $2. $22.96 C. Ross .. and $3. J&J Exporters paid a $1. . respectively.27 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $5.92 D. After that.82 C. After that the dividend will be constant at $3.55.35 a share.80 per share annual dividend last month. $5. The following dividends will be $.20 per share per year. .47 B.75.5% per year. The Slim Waist announced today that they will begin paying annual dividends. The first dividend will be paid next year in the amount of $. .Chapter 08 #291 Type: Problems . $2.73 D. $6.290. and $.57 E. . Ross . dividends are projected to increase by 2. What is the market price of this stock if the market rate of return is 13%? A. . respectively. $6.00.03 E. .. . $20. The company is planning on paying $2. . How much are you willing to pay to buy one share of this stock if your desired rate of return is 12%? A. .47 B.40. $.37 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $15.70 a share annually for the following three years.

the dividend is expected to increase by 2.33 E. respectively. $24.80 over the next four years. $3.68.66 B. $3.71 E. Future dividends are projected at $1.72. . Ross . Beginning five years from now. . $4.84 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .37 D. ..49 B. and $1.292. $25.Chapter 08 #292 Type: Problems 293. $1.5% annually.76. $19. $21. $4.94 C. Bliley Plumbers pays no dividend at the present time.33 D. . .Chapter 08 #293 Type: Problems . $1..68 C. . Gloria's Boutique of Ottawa recently paid $1. Ross . After that time. . How much are you willing to pay to buy a share of this stock if your required return is 15%? A. $4.90 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The company plans to start paying an annual dividend in the amount of $0. the company plans on paying a constant $1 a share dividend indefinitely. . . $18.20 a share for three years commencing three years from today. What is one share of this stock worth to you if you require an 11% rate of return on similar investments? A.65 as an annual dividend.

294., Simplicity is a relatively new firm that appears to be on the road to great success. The company paid their first annual dividend yesterday in the amount of $0.15 a share.
The company plans to double each annual dividend payment for the next four years. After that time, they are planning on paying a constant dividend of $2.50 per share
indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 13.45%?

A. , $12.32
B. , $12.77
C. , $13.77
D. , $14.22
E. , $14.37

Difficulty: Intermediate
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #294
Type: Problems
295., Home Builders, Inc. is a very cyclical type of business which is reflected in their dividend policy. The firm pays a $3.50 per share dividend every other year. The last
dividend was paid last year. Four years from now, the company plans to pay a $77 liquidating dividend per share. What is the current market value of this stock if the market rate
of return is 18.5%?

A. , $41.54
B. , $43.32
C. , $44.11
D. , $46.59
E. , $48.37

Difficulty: Intermediate
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #295
Type: Problems

296., Super Sounds is expecting a period of intense growth and has decided to retain more of their earnings to help finance that growth. As a result, they are going to reduce the
annual dividend by 20% a year for the next three years. After that they will maintain a constant dividend of $1 a share. Last year, the company paid $2.25 as the annual dividend
per share. What is the market value of this stock if the required rate of return is 16%?

A. , $6.63
B. , $7.36
C. , $8.08
D. , $9.61
E. , $11.23

Difficulty: Challenge
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #296
Type: Problems
297., Shirley's Cool Treats is expecting their ice cream sales to decline due to the increased interest in healthy eating. Thus, the company has announced that they will be reducing
their annual dividend by 4% a year for the next four years. After that, they will maintain a constant dividend of $1 a share. Last year, the company paid $1.80 per share. What is
this stock worth to you if you require a 12% rate of return?

A. , $9.29
B. , $10.27
C. , $11.30
D. , $12.07
E. , $13.10

Difficulty: Challenge
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #297
Type: Problems

298., The preferred stock of West Coast Limited pays an annual dividend of $5.50 and sells for $52 a share. What is the rate of return on this security?

A. , 9.45%
B. , 9.83%
C. , 10.48%
D. , 10.58%
E. , 10.77%
R = $5.50/$52.00 = 10.58%
Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #298
Type: Problems
299., Stu owns shares of Markley preferred stock which he says provides him with a constant 13.6% rate of return. The stock is currently priced at $51.47 a share. What is the
amount of the dividend per share?

A. , $2.64
B. , $3.78
C. , $5.85
D. , $6.26
E. , $7.00
D = .136 × $51.47 = $7.00
Difficulty: Basic
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #299
Type: Problems
300., Stocks are different from bonds because ___________________.

A. , Stocks, unlike bonds, are major sources of funds.
B. , Stocks, unlike bonds, represent residual ownership.
C. , Stocks, unlike bonds, give owners legal claims to payments.
D. , Bonds, unlike stocks, represent voting ownership.
E. , Bonds pay dividends.

Difficulty: Intermediate
Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.
Ross - Chapter 08 #300
Type: Concepts
301., A characteristic of public corporations is to allocate a portion of their earnings to shareholders through _______________.

A. , Stock splits.
B. , Cash dividends.
C. , Net Income.
D. , Stock dividends.
E. , Stock liquidation.

Chapter 08 #302 Type: Problems . Ross .00 annual cash dividends for the next five years. $16..55 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.63 E.37 C.Chapter 08 #301 Type: Concepts 302. .37 B. If you want to earn 10% on this investment. You want to invest in a stock that pays $6. . you will sell the stock for $30. At the end of the five years. . $41.Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $22. $18. $40.00. . what is a fair price for this stock if you buy it today? A. .75 D. Ross .

.80. pays quarterly dividends of $2. The next dividend is expected to be $1.Chapter 08 #304 Type: Problems . . $20. .5% on your investment? A. .303. $78. $84.21 E. $30.13 E..71 D. . Ross . Kwak Motors Inc. $15. $88. $80. $92. Ross .21 B.. . $25. growth rate is 6%.Chapter 08 #303 Type: Problems 304.00 dividend and will maintain this policy forever. What price should you pay for one share of preferred stock if you want an annual return of 9. . and the required rate of return is 13%. $35.21 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.83 C.81 B.51 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. .21 C.21 D. . . What is the stock price? A.

.40 C.80 B.Chapter 08 #306 Type: Concepts . $33. B. . Sedgwick expects its dividends to grow at 7% forever. $30. E. $29. Past and present cash flows. $44.20 D. It does not expect to pay dividends for seven years. . .Chapter 08 #305 Type: Problems 306. A. $31. it will pay $2.. D.00 per share in dividends. Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.305. Dividend models suggest that ____________ determine the value of a financial asset to which the owner is entitled while holding the asset. has a 12% required rate of return. C. . At that time. Future cash flows. Past cash flows. Ross . .00 E. Ross . .. A. . Past and future cash flows. . Sedge Inc. At the end of year 8. . Calculate the stock price now. Current cash flows.80 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.

Tarp Corporation is a young start-up company. . $7. No dividends will be paid over the next ten years because the firm needs to plow back its earnings to fuel growth. $8. .84 D. $7. . what is the current share price? A. $8. If the required return on this stock is 15%. .54 C. Ross .24 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.307.Chapter 08 #307 Type: Problems .04 E. The company will pay $3 per share dividend in year 11 and will increase the dividend by 6% per year thereafter..24 B. $7. .

$54.308. . The required return on this stock is 10%.Chapter 08 #308 Type: Problems . if it just paid a $2 dividend? A. 10% over the following year. $65. .88 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Ross . is experiencing rapid growth. $43.77 E.. . What is the projected stock price for the coming year. . . $32. $21. Dividends are expected to grow at 20% per year during the next three years.44 B. and then 4% per year indefinitely.55 C. City Corp.66 D.

Ross . $55.84 B. The company plans to maintain a constant 4% growth rate in dividends afterwards. $43. $53. . . $9.Chapter 08 #309 Type: Problems . . $6.24 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.. and $3 over the next four years.84 E.04 C.44 D. If the required return on the stock is 11%. $51. what is the current share price? A. Chahal Corporation is expected to pay dividends of $12.309. $47. . .

20 D. $50.02 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.48 B. Ross .45 per share. $58.39 C. .310. $52. $54. . The company will increase its dividend 20% the year after and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5% dividend growth. . . . what will a share of stock sell for today? A. after which the company will keep a constant growth rate forever. If the required return for investors is 11%.11 E. $56..Chapter 08 #310 Type: Problems . Holdom Corporation's next dividend will be $2.

A. what is the price of the stock today? A. $26. $22. $24.50 C.311. . $27. . . .50 per share. $22..00 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $24. If the required return is 12%. . .50 E. .95 E. If investors want a 12% return.Chapter 08 #312 Type: Problems .95 B.00 D.00 B. Ross .75. $23. Dividend growth has been a consistent 7% per year. $25. NanTech Corporation's next dividend is expected to be $1.05 D. . $26.55 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The dividends are expected to grow at 20% for the next eight years and then level off to a 5% growth rate indefinitely. Ross . Talon Corp. just paid a dividend of $1.Chapter 08 #311 Type: Problems 312.. $23. determine the stock price 5 years ago.55 C. . .

313. what was the price of the stock three years ago? A. Talon Corp.64 D. . . $15. . just paid a dividend of $1.50 per share. .. . Ross . $16.Chapter 08 #313 Type: Problems .74 C. $19.84 B.44 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. $18. If the required return is 12%. $17.54 E. The dividends have been growing at 5% per year.

If the required return for investors is 11%. Holdom Corporation's next dividend will be $2. . . .314. $57. List and briefly explain the three special cases in which we can come up with a value for a share of stock. and cases where the dividend grows at a constant rate after some length of time. constant growth.Chapter 08 #314 Type: Problems 315. The three cases are: zero growth. $61. what will a share of stock sin year 2? A. Ross .08 B.45 per share.Chapter 08 #315 Type: Essay . $58. Ross . Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. after which the company will keep a constant growth rate forever. and the third case requires using the non-constant dividend growth model.89 C. $59.. $60. The company will increase its dividend 20% the year after and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5% dividend growth. the constant growth case is a straightforward application of the dividend growth model.63 E. .45 Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.16 D. The zero growth case is a simple perpetuity.. .

According to the dividend growth model. Ross . Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. then find P0 = D1/(1. we can value this share of stock by finding P2 using D3. Briefly explain the differences between preferred and common stock.. For stocks.1)2 + P2/(1.316. have a final maturity date and promised payments at fixed periods of time. What are the components of the required rate of return on a share of stock? Briefly explain each. and explain why? Bonds. preferred shareholders have a preference over common stockholders. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. unlike stocks. $2 at the end of two years. A number of publicly traded firms pay no dividends yet investors are willing to buy shares in these firms.Chapter 08 #317 Type: Essay 318. so if investors are willing to purchase shares of stock in firms that pay no dividends. Ross . and then dividends grow at a constant rate of 5% per year thereafter. Common stockholders have the right to vote on corporate matters and have the right to receive the residual value of the firm after all liabilities and preferred stockholders are paid in a liquidation. may or may not have the right to collect dividends that have been passed. Ross . the only valuation model we have up to this point in the text is the dividend growth model which requires estimation of a dividend growth rate and also requires that certain conditions be met before the dividend growth model can be applied. we have included all dividends in the stock valuation. How is this possible? Does this violate our basic principle of stock valuation? Explain? Our basic principle of stock valuation is that the value of a share of stock is simply equal to the present value of all of the expected dividends on the stock. all of the information required to find the yield on a publicly traded bond is publicly available while only the price and most current dividend are available for stocks. it appears as though we ignore all dividends from year three on. Difficulty: Intermediate Learning Objective: 08-02 The characteristics of common and preferred stocks. Ross . Explain whether it is easier to find the required return on a publicly traded stock or a publicly traded bond.Chapter 08 #319 Type: Essay 320.Chapter 08 #318 Type: Essay 319. an asset that has no expected cash flows has a value of zero. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.1) + D2/(1. Consider a share of stock that pays a dividend of $1 at the end of one year. The two components are dividend yield.1)1. In a liquidation.. Preferred stockholders have a promised dividend. they evidently expect that the firms will begin paying dividends at some point in the future. and the capital gains yield. which is the percentage price appreciation (or depreciation) of the stock. Ross . Normally. When we compute (P2 we incorporate dividend number three. which is required in order to determine the value of a share.Chapter 08 #320 Type: Essay .. but also all dividends from that point forward) Thus. and preferred stock will typically be rated much like bonds. which measures the annual percentage income return on the stock.Chapter 08 #316 Type: Essay 317... Why is this so? We actually don't ignore any dividends. If the required return is 10%. In this formula.

321.05 increase to a $0. Explain why preferred stock is similar to debt. Which do you think will have a higher share price and why? If the firm also has an issue of non-callable debentures outstanding.Chapter 08 #324 Type: Essay 325. may have a credit rating. it only requires a small increase in the dividend amount to equate to a large increase in percentage terms. which carries voting rights of 10 votes per share but receives no dividends (ever). the future income stream is measured by the amount of the next dividend and the expected future increases in those dividends. For a $2. Ross .Chapter 08 #322 Type: Essay 323. may be convertible into common stock.. The investor-required return will be higher for the stock since bonds have promised payments and preference over stock in liquidation. the debentures or the shares of common stock? Explain. but only in the short-term.. firms cannot afford too many years of supernormal growth.Chapter 08 #325 Type: Essay . As the dividend amount increases. Which would you be willing to pay more for and why? This is a very open-ended question to get the students thinking about the differing interests of investors. and has no voting rights. may be callable. This question sets up some of the material addressed later in the chapter. For stocks which pay dividends. Difficulty: Intermediate Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.10 dividend is a 50% increase. Difficulty: Challenge Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. Explain how supernormal growth of dividends is possible. whose value is derived completely from the voting rights. the dividend amount would have to rise by $1. a $0. Thus. Explain the logic behind the dividend growth model. rapidly growing firms which have not previously paid a dividend. The astute student will make the connection that bondholder returns are effectively limited while stockholder returns are effectively not. Supernormal growth is often associated with young. First. It is a lot easier to afford a $0. both of which just paid a dividend of $3 per share. the same percentage increase would cost significantly more in dollar terms. When these firms begin to pay dividends. Ross ..00 increase.Chapter 08 #321 Type: Essay 322. Therefore. Preferred stock pays a constant amount. the amount is often small. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.05 increase than a $1.00 dividend to increase by 50%. For example. The current value of a stock is equal to the present value of the future income derived from that stock. Ross .Chapter 08 #323 Type: Essay 324. A firm has common and preferred stock outstanding. Difficulty: Basic Learning Objective: 08-02 The characteristics of common and preferred stocks. which do you think investors will require a higher return on. Difficulty: Challenge Learning Objective: 08-02 The characteristics of common and preferred stocks. The Class B shares with their ordinary voting rights and dividends can be valued using the dividend growth model but the Class A shares.. may have a sinking fund. would be very difficult to value. Ross . Ross . These are characteristics also found in debt securities. Management of the firm would likely prefer Class A while investors interested in dividends would likely prefer Class B shares. the share of common stock will be worth more since dividends will typically be expected to increase while they will not on the preferred shares.. These dividends are then discounted based on each investor's required rate of return to determine the present value of the stock to that investor.00. A firm has two classes of common stock outstanding: Class A. and Class B. which carries voting rights of one vote per share and pays dividends whenever they are declared by the board.

Chapter 08 #326 Type: Essay . Student answers will vary but the most common example may be that of a firm which is just beginning to pay dividends. Difficulty: Basic Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth. The firm may start with a small amount.326. Ross . such as $.15 a share is a 50% increase. Give an example of a firm which might offer a supernormal dividend growth rate for a stated period of time.10 to $.10 a share and increase the dividend at a high rate until the dividend reaches the desired long-term level. An increase from $..

74 Learning Objective: 08-03 The different ways corporate directors are elected to office. 8 Ross ...Chapter 08. 181 .. # of Questions Difficulty: Basic. 7 Difficulty: Intermediate. 1 Learning Objective: 08-04 The stock market quotations and the basics of stock market reporting. 34 Type: Essay. 12 Type: Problems. 228 Difficulty: Challenge. 329 Type: Concepts. 243 Learning Objective: 08-02 The characteristics of common and preferred stocks.. 98 Type: Definitions.8 Summary Category. 91 Learning Objective: 08-01 How stock prices depend on future dividends and dividend growth.