# chapter 7 finance

 which one of the following types of securities has the lowest priority in a bankruptcy proceeding? common stock Lamey Gardens has a dividend growth rate of 5.6 percent, a market price of \$13.16 a share, and a required return of 14 percent. What is the amount of the last dividend this company paid? R = D/P + g 14 = x/13.16 + 0.056D = 1.05 Breakfast Hut pays a constant annual dividend of \$1.39 per share. How much are you willing to pay for one share if you require a rate of return of 14.6 percent? P = D/R. 1.39/0.146 Healthy Foods just paid its annual dividend of \$1.62 a share. The firm recently announced that all future dividends will be increased by 2.1 percent annually. What is one share of this stock worth to you if you require a rate of return of 15.7 percent? P = D1/R – g1.62 / 0.157-0.021 = 12.16 An agent who buys and sells securities from inventory is called a: dealer NASDAQ is best described as: an electronic network of securities dealers. dividend yield D1/P0 For the past six years, the price of Slippery Rock stock has been increasing at a rate of 8.21 percent a year. Currently, the stock is priced at \$43.40 a share and has a required return of 11.65 percent. What is the dividend yield? R = Dividend yield * capital gains 0.1165 = x. + 0.0821 X = 3.44 sully corp. has currently has an EPS of 2.35 and the benchmark PE ratio for the company is 21. Earnings are expected to grow at 7% per year. What is the target stock price in one year. 2.35(1.07) *21 52.80 the dividend yield on a stock will increase if the stock price decreases. When valuing a stock using the constant-growth model, D1 represents the: When valuing a stock using the constant-growth model, D1 represents the: The capital gains yield equals which one of the following? Dividend growth rate There are two open seats on the board of directors. If two separate votes occur to elect the new directors, the firm is using a type of voting that is best described as _____ voting. straight Kate could not attend the last shareholders’ meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority? proxy Newly issued securities are sold to investors in which one of the following markets? primary A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a: floor broker Which one of the following will increase the current value of a stock? Increase in the capital gains yield The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year? dividend yield + capitals gains yield Which one of the following must equal zero if a firm pays a constant annual dividend? capital gains yield If shareholders are granted a preemptive right they will: have priority in the purchase of any newly issued shares. On which one of the following dates do dividends become a liability of the issuer for accounting purposes? On the date the board declares the dividend Dividends are: Paid out of aftertax profits Opulance Corp. common stock is selling for \$44.25 a share and has a dividend yield of 1.9 percent. What is the dividend amount? 0.019*44.25 The Glass Ceiling paid an annual dividend of \$1.64 per share last year and just announced that future dividends will increase by 1.3 percent annually. What is the amount of the expected dividend in Year 6? 1.64 *(1.013)^6 Gator Tires pays a constant annual dividend of \$1.21 per share. How much are you willing to pay for one share if you require a rate of return of 9.3 percent? 1.21/0.093 Sweet Treats pays a constant annual dividend of \$2.38 a share and currently sells for \$52.60 a share. What is the rate of return? 2.38/52.60 Dry Dock Marina is expected to pay an annual dividend of \$1.58 next year. The stock is selling for \$18.53 a share and has a total return of 9.48 percent. What is the dividend growth rate? g = .0948 − (\$1.58/\$18.53) = .0095, or .95 percent River City Recycling just paid its annual dividend of \$1.15 per share. The required return is 12.3 percent and the dividend growth rate is 0.75 percent. What is the expected value of this stock five years from now? P5 = [\$1.15 × (1 + .0075)6] / (.123 − .0075) = \$10.41 This morning, you purchased a stock that will pay an annual dividend of \$1.90 per share next year. You require a 12 percent rate of return and the dividend increases at 3.5 percent annually. What will your capital gain be in dollars on this stock if you sell it three years from now? P0 = \$1.90 / (.12 − .035) = \$22.35P3 = [\$1.90 × (1.035)3] / (.12 − .035) = \$24.78Capital gain = \$24.78 − 22.35 = \$2.43 River Rock, Inc., just paid an annual dividend of \$2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent? P6 = (\$2.80 × 1.0257) / (.16 − .025) = \$24.65
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