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Exam 8: Stock Valuation

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Question 61

Multiple Choice

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Which one of the following statements related to corporate dividends is correct?

A) Dividends are nontaxable income to shareholders.
B) Dividends reduce the taxable income of the corporation.
C) The Chief Executive Officer of a corporation is responsible for declaring dividends.
D) The Chief Financial Officer of a corporation determines the amount of dividend to be paid.
E) Corporate shareholders may receive a tax break on a portion of their dividend income.

F) None of the above
G) A) and B)

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Question 62

Multiple Choice

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You own one share of a cumulative preferred stock which pays quarterly dividends.The firm has recently suffered some financial setbacks and has failed to pay the last two dividends.However,new funding has been arranged and the firm intends to restore all dividends,both common and preferred,this quarter.As a preferred shareholder,you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.

A) 0
B) 1
C) 2
D) 3
E) either 1, 2, or 3

F) A) and C)
G) C) and D)

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Question 63

Multiple Choice

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The Farmer's Market just paid an annual dividend of $5 on its stock.The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.Investors require a 13 percent return on the stock for the first 3 years,a 9 percent return for the next 3 years,a 7 percent return thereafter.What is the current price per share?

Harvey County Choppers,Inc.is experiencing rapid growth.The company expects dividends to grow at 25 percent per year for the next 7 years before leveling off to 7 percent into perpetuity.The required return on the stock is 12 percent.What is the current stock price if the annual dividend share that was just paid was $1.05?

Sweatshirts Unlimited is downsizing.The company paid a $2.80 annual dividend last year.The company has announced plans to lower the dividend by 25 percent each year.Once the dividend amount becomes zero,the company will cease all dividends and go out of business.You have a required rate of return of 18 percent on this particular stock given the company's situation.What are your shares in this firm worth today on a per share basis?

Galloway,Inc.has an odd dividend policy.The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $2 per share for each of the next 5 years,and then never pay another dividend.How much are you willing to pay per share today to buy this stock if you require a 15 percent return?

Dexter Metals,paid its first annual dividend yesterday in the amount of $0.18 a share.The company plans to double each annual dividend payment for the next 3 years.After that time,it plans to pay $1.25 a share for 2 years than then pay a constant dividend of $1.60 per share indefinitely.What is one share of this stock worth today if the market rate of return on similar securities is 10.24 percent?

Atlas Mines has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 2.75 percent annually.The firm just paid an annual dividend of $1.67.What will the dividend be six years from now?

Home Canning Products common stock sells for $41.00 a share and has a market rate of return of 12.8 percent.The company just paid an annual dividend of $1.15 per share.What is the dividend growth rate?

You want to purchase some shares of Green World stock but need a 15 percent rate of return to compensate for the perceived risk of such ownership.What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $0.90 annual dividend per share?

Douglass Gardens pays an annual dividend that is expected to increase by 3.6 percent per year.The stock commands a market rate of return of 12.6 percent and sells for $28.50 a share.What is the expected amount of the next dividend?

The owner of one of the 1,366 trading licenses for the NYSE is called a:

Morristown Industries has an issue of preferred stock outstanding that pays a $12.60 dividend every year in perpetuity.What is the required return if this issue currently sells for $80 per share?

The counter area on the floor of the NYSE where a specialist operates is called a:

Which one of the following statements is correct?

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf.What is the granting of this authority called?

Springboro Tech is a young start-up company.No dividends will be paid on the stock over the next 15 years,because the firm needs to plow back its earnings to fuel growth.The company will pay a $15 per share dividend in 16 years and will increase the dividend by 4 percent per year thereafter.What is the current share price if the required return on this stock is 8 percent?

Great Lakes Health Care common stock offers an expected total return of 9.2 percent.The last annual dividend was $2.10 a share.Dividends increase at a constant 2.6 percent per year.What is the dividend yield?

Which one of the following represents the capital gains yield as used in the dividend growth model?