Question 1

$35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today?

Accepted Answer

A)   $37.86
B)   $38.83
C)   $39.83
D)   $40.85
E)   $41.69F) A) and C)
G) A) and B)

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)   if a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
B)   the stock valuation model, p0 = d1/(rs σ g) , can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
C)   the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
D)   the constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.
E)   the constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.F) A) and E)
G) All of the above

Question 3

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = σ5%) . If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

Accepted Answer

A)   the company's dividend yield 5 years from now is expected to be 10%.
B)   the constant growth model cannot be used because the growth rate is negative.
C)   the company's expected capital gains yield is 5%.
D)   the company's expected stock price at the beginning of next year is $9.50.
E)   the company's current stock price is $20.F) C) and D)
G) None of the above

Question 4

A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?

Accepted Answer

A)   $16.28
B)   $16.70
C)   $17.13
D)   $17.57
E)   $18.01F) D) and E)
G) A) and B)

Question 5

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
 AB‾ Required return 10%12% Market price $25$40 Expected growth 7%9%\begin{array}{lcc}& \mathrm{A}& \underline{\mathrm{B}} \	ext { Required return } & 10 \% & 12 \%\	ext { Market price }  & \$ 25 & \$ 40 \	ext { Expected growth } & 7\%& 9\% \\end{array} Required return  Market price  Expected growth ​A10%$257%​B​12%$409%​

Accepted Answer

A)   these two stocks must have the same dividend yield.
B)   these two stocks should have the same expected return.
C)   these two stocks must have the same expected capital gains yield.
D)   these two stocks must have the same expected year-end dividend.
E)   these two stocks should have the same price. F) A) and E)
G) All of the above

Question 6

Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?

\begin{array}{lcc}\text { Expected dividend,  D_{1}  }&3.00\$\\text { Current Price,  $ P_{0} $  } &50\$\ \text { Expected constant growth rate } & 6.0\% \end{array}

Accepted Answer

A)   the stock's expected dividend yield and growth rate are equal.
B)   the stock's expected dividend yield is 5%.
C)   the stock's expected capital gains yield is 5%.
D)   the stock's expected price 10 years from now is $100.00.
E)   the stock's required return is 10%. F) C) and D)
G) C) and E)

Question 7

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?
  A3‾ Price $25$25 Expected growth (constant)  10%5% Required retun 15%15%\begin{array} { l c c } & \mathrm { A }  & \underline { 3 } \	ext { Price } &\$25&\$25\	ext { Expected growth (constant)  } & 10 \% & 5 \% \	ext { Required retun } & 15 \% & 15 \%\\end{array} Price  Expected growth (constant)   Required retun ​A$2510%15%​3​$255%15%​

Accepted Answer

A)   stock a has a higher dividend yield than stock b.
B)   currently the two stocks have the same price, but over time stock b's price will pass that of a.
C)   since stock a's growth rate is twice that of stock b, stock a's future dividends will always be twice as high as stock b's.
D)   the two stocks should not sell at the same price. if their prices are equal, then a disequilibrium must exist.
E)   stock a's expected dividend at t = 1 is only half that of stock b. F) A) and B)
G) B) and C)

Question 8

National Advertising just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

Accepted Answer

A)   $14.52
B)   $14.89
C)   $15.26
D)   $15.64
E)   $16.03F) B) and E)
G) B) and C)

Question 9

If a company's free cash flows are expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT?The stock is in equilibrium.

Accepted Answer

A)   the company's stock's dividend yield is 5%.
B)   the value of operations is expected to decline in the future.
C)   the company's wacc must be equal to or less than 5%.
D)   the company's value of operations one year from now is expected to be 5% above the current price.
E)   the expected return on the company's stock is 5% a year.F) A) and B)
G) None of the above

Question 10

Decker Tires' free cash flow was just FCF0 = $1.32. Analysts expect the company's free cash flow to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The WACC for this company 9.00%. Decker has $4 million in short-term investments and $14 million in debt and 1 million shares outstanding. What is the best estimate of the stock's current intrinsic price?

Accepted Answer

A)   $31.59
B)   $32.65
C)   $33.75
D)   $34.87
E)   $35.99F) B) and E)
G) A) and D)

Question 11

Heath and Logan Inc. forecasts the free cash flows (in millions)  shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?   Year: 123 Free cash flaw: −$15$10$40\begin{array}{lccc}	ext { Year: } & 1 & 2&3 \\hline 	ext {  Free cash flaw: } & -\$ 15& \$ 10& \$ 40\end{array} Year:  Free cash flaw: ​1−$15​2$10​3$40​​

Accepted Answer

A)   $315
B)   $331
C)   $348
D)   $367
E)   $386 F) A) and D)
G) A) and C)

Question 12

A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?

Accepted Answer

A)   $17.39
B)   $17.84
C)   $18.29
D)   $18.75
E)   $19.22F) A) and B)
G) A) and E)

Question 13

Orwell Building Supplies' last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs)  is 12%. What is the best estimate of the current stock price?

Accepted Answer

A)   $41.58
B)   $42.64
C)   $43.71
D)   $44.80
E)   $45.92F) B) and C)
G) None of the above

Question 14

Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Accepted Answer

A) True 
 B)False

Question 15

The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs)  is 11%, what is its current stock price?

Accepted Answer

A)   $30.57
B)   $31.52
C)   $32.49
D)   $33.50
E)   $34.50F) B) and D)
G) C) and D)

Question 16

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P0?

Accepted Answer

A)   $18.62
B)   $19.08
C)   $19.56
D)   $20.05
E)   $20.55F) None of the above
G) All of the above

Question 17

If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Accepted Answer

A)   the stock's dividend yield is 5%.
B)   the price of the stock is expected to decline in the future.
C)   the stock's required return must be equal to or less than 5%.
D)   the stock's price one year from now is expected to be 5% above the current price.
E)   the expected return on the stock is 5% a year.F) A) and E)
G) A) and D)

Question 18

The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

Accepted Answer

A)   if stock y and stock x have the same dividend yield, then stock y must have a lower expected capital gains yield than stock x.
B)   if stock x and stock y have the same current dividend and the same expected dividend growth rate, then stock y must sell for a higher price.
C)   the stocks must sell for the same price.
D)   stock y must have a higher dividend yield than stock x.
E)   if the market is in equilibrium, and if stock y has the lower expected dividend yield, then it must have the higher expected growth rate.F) C) and D)
G) None of the above

Question 19

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal)  rate of return?

Accepted Answer

A)   6.62%
B)   6.82%
C)   7.03%
D)   7.25%
E)   7.47%F) C) and D)
G) A) and B)

Question 20

If D1 = $1.25, g (which is constant)  = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

Accepted Answer

A)   7.54%
B)   7.73%
C)   7.93%
D)   8.13%
E)   8.34%F) C) and D)
G) D) and E)

Exam 8: Basic Stock Valuation

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return?

Correct Answer
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Correct Answer
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A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = σ5%) . If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

Correct Answer
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The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

Correct Answer
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If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

Correct Answer
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A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?

Correct Answer
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If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Orwell Building Supplies' last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?

Correct Answer
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A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?

Correct Answer
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Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Correct Answer
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The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P₀?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?

Correct Answer
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$35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today?

Correct Answer
verified

Correct Answer
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If a company's free cash flows are expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT?The stock is in equilibrium.

Correct Answer
verified

Exam 8: Basic Stock Valuation

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter, and it sells for $55.00 per share. What is its effective annual (not nominal) rate of return?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = σ5%) . If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

Correct AnswerverifiedShow Answer

A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?

Correct AnswerverifiedShow Answer

If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Orwell Building Supplies' last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (rs) is 12%. What is the best estimate of the current stock price?

Correct AnswerverifiedShow Answer

A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?

Correct AnswerverifiedShow Answer

Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Correct AnswerverifiedShow Answer

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P0?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its current stock price?

Correct AnswerverifiedShow Answer

$35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a company's free cash flows are expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT?The stock is in equilibrium.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P₀?

Correct Answer
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Correct Answer
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