Finance 3000 Chapter 8

When valuing a stock using the constant-growth model, D1 represents the the next expected annual dividend
the dividend yield is defined as next year’s expected dividend divided by the current market price per share.
the capital gains yield equals which one of the following dividend growth rate
which one of the following types of securities has the lowest priority in a bankruptcy proceeding common stock
Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are three open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting? cumulative
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
dividends are best defined as cash or stock payments to shareholders
Which type of stock pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred? cumulative preferred
Newly issued securities are sold to investors in which one of the following markets? primary
what is the market called that facilitates the sale of shares between individual investors secondary
an agent who buyers and sells securities from inventory is called a dealer
a broker is an agent who brings buyers and sellers together
any person who owns a license to trade on the NYSE is called a member
a person who executes customer orders to buy and sell securities on the floor of the NYSE is called a floor broker
A DMM is an NYSE member who functions as a dealer for a limited number of securities
supplemental liquidity providers trade securities on behlaf of their own accounts
most trades on the NYSE are executed electronically
the stream of customer instructions to buy and sell securities is called the order flow
the specific location on the floor of an exchange where a particular security is traded is called a post
Inside quotes are defined as the: lowest asked and highest bid offers.
which one of the following will increase the current value of a stock increase the capital gains yield
the price of a stock at year 4 can be expressed as D5/(i-g)
Delfino’s expects to pay an annual dividend of $1.50 per share next year. What is the anticipated dividend for Year 5 if the firm increases its dividend by 2 percent annually? 1.50*(1.02)^4
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+capital gains yield
Sugar Cookies will pay an annual dividend of $1.23 a share next year. The firm expects to increase this dividend by 8 percent per year the following four years and then decrease the dividend growth to 2 percent annually thereafter. Which one of the following is the correct computation of the dividend for Year 7? (1.23)(1.08)^4(1.02)^2
the dividend yield on a stock will increase if the stock price decreases
whoch one of the following must equal zero if a firm pays a constant annual dividend capital gains yield
the constant growth model can be used to value the stock of firms that have which types of dividends dividends that are either constant or change annually at a constant rate
Computing the present value of a growing perpetuity is most similar to computing the current value of which one of the following? stock with a constant growth dividend
which statement is true From a legal perspective, preferred stock is a form of corporate equity.
which of the following statements is correct preferred stock can be callable
is 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 a dividend
dividends are Paid out of aftertax profits
to be a member of the NYSE you must own a trading license
which one of the following players on the floor of the NYSE is obligated to maintain a two-sided, orderly market for a limited number of securities designated market maker
the NYSE is in the business of attracting order flow.
in November 2013 the NYSE was acquired by Intercontinental Exchange
NASDAQ is best described as an electronic network of securities dealers.
Which one of the following features applies to NASDAQ but not the NYSE multiple market maker system
Triad common stock is selling for $27.80 a share and has a dividend yield of 2.8 percent. What is the dividend amount? .78
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? 1.77
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? 9.52
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? 4.52
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? 12.16
Solar Energy will pay an annual dividend of $1.93 per share next year. The company just announced that future dividends will be increasing by 1.6 percent annually. How much are you willing to pay for one share of this stock if you require a rate of return of 11.75 percent? 19.01
Braxton’s Cleaning Company stock is selling for $32.60 a share based on a rate of return of 13.8 percent. What is the amount of the next annual dividend if the dividends are increasing by 2.4 percent annually? 3.72
The common stock of Up-Towne Movers sells for $33 a share, has a rate of return of 11.4 percent, and a dividend growth rate of 2 percent annually. What was the amount of the last annual dividend paid? 3.04
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? .95
Best Ever Toys just paid its annual dividend of $1.78 per share. The required return is10.6 percent and the dividend growth rate is 1.23 percent. What is the expected value of this stock five years from now? 20.44
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? 2.43
Horseshoe Stables is losing significant market share and thus its managers have decided to decrease the firm’s annual dividend. The last annual dividend was $.86 a share but all future dividends will be decreased by 3.5 percent annually. What is a share of this stock worth today at a required return of 17.8 percent? 3.90
. 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? 1.05
The common stock of Sweet Treats has a total return of 11.62 percent, a stock price of $48.20, and recently paid an annual dividend of $2.38. What is the capital gains rate if the company maintains a constant dividend? 6.68
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? 24.65
The Sports Club plans to pay an annual dividend of $1.20 per share next year, $1.12 per share a year for the following two years, and then a final liquidating dividend of $14.20 per share four years from now. How much is one share of this stock worth to you today if you require a rate of return of 18.7 percent of this risky investment? 9.63
Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years. Yesterday, the firm announced the dividend will increase next year by 10 percent and will stay at that level through Year 3, after which time the dividends will increase by 2 percent annually. The required return on this stock is 12 percent. What is the current value per share? 25.51
The Fish House is expected to pay annual dividends of $1.23 and $1.25 at the end of the next two years, respectively. After that, the company expects to pay a constant dividend of $1.35 a share. What is the value of this stock at a required return of 16.4 percent? 8.05
The Impulse Shopper recently paid an annual dividend of $1.13 per share. The company just announced that it is suspending all dividend payments on its common stock for the next five years. After that, the company expects to pay $.50 a share at the end of each year. At a required return of 18 percent, what is this stock worth today? 1.21
Business Solutions is expected to pay its first annual dividend of $.84 per share in Year 3. Starting in Year 6, the company plans to increase the dividend by 2 percent per year. What is the value of this stock today, Year 0, at a required return of 14.4 percent? 5.01
Nu-Tek is expanding rapidly. As a result, the company expects to pay annual dividends of $.62, .80, and $1.05 per share over the next three years, respectively. After that, the dividend is projected to increase by 4 percent annually. What is the current value of this stock if the required return is 16 percent? 7.63
Toy Mart recently announced that it will pay annual dividends at the end of the next two years of $1.60 and $1.10 per share, respectively. Then, in Year 5 it plans to pay a final dividend of $13.50 a share before closing its doors permanently. At a required return of 13.5 percent, what should this stock sell for today? 9.43
Dixie Mart plans to pay dividends of $1.36, $1.15, $1.35, and $.40 at the end of the next four years, respectively. After that, the company will be sold and shareholders are expected to receive $82.40 per share in Year 6 when the sale should be finalized. If the required return is 11.4 percent, what is the current value of one share of this stock? 46.50
The Three Amigos just paid an annual dividend of $.60 per share but plans to double that amount each year for three years. After that, the firm expects to maintain a constant dividend. What is the value of this stock today if the required return is 15 percent? 27.05
Village East expects to pay an annual dividend of $1.40 per share next year, and $1.68 per share for the following two years. After that, the company plans to increase the dividend by 3.4 percent annually. What is this stock’s current value at a discount rate of 13.7 percent? 15.15
The required return on Mountain Brook stock is 13.8 percent and the dividend growth rate is 3.64 percent. The stock is currently selling for $32.80 a share. What is the dividend yield? 10.16
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? 3.44
A stock has paid dividends of $1.70, $1.85, $2.00, $2.20, and $2.50 over the past five years, respectively. What is the average capital gains yield? 10.14
The Toy Chest will pay an annual dividend of $2.64 per share next year and currently sells for $48.30 a share based on a market rate of return of 11.67 percent. What is the capital gains yield? 6.2
A stock is priced at $38.24 a share and has a market rate of return of 9.65 percent. What is the dividend growth rate if the company plans to pay an annual dividend of $.48 a share next year? 8.39
Vegan Delite stock is valued at $68.60 a share. The company pays a constant annual dividend of $2.40 per share. What is the total return on this stock? 3.50
Last year, when the stock of Alpha Minerals was selling for $49.50 a share, the dividend yield was 3.4 percent. Today, the stock is selling for $41 a share. What is the total return on this stock if the company maintains a constant dividend growth rate of 2.2 percent? 6.40
There are three open positions on the board of directors of XYZ Enterprises. The company has 264,000 shares of stock outstanding. Each share is entitled to one vote. How many shares of stock must you own to guarantee your personal election to the board of directors if the firm uses cumulative voting? 66,001
A preferred stock sells for $54.20 a share and has a market return of 9.68 percent. What is the dividend amount? 5.25
Spiral Staircase is offering preferred stock which is referred to as 10-10 stock. This stock will pay an annual dividend of $10 a share starting 10 years from now. What is this stock worth to you today if you require a rate of return of 9.5 percent? 46.51
Graphic Designs has 68,000 shares of cumulative preferred stock outstanding. Preferred shareholders are supposed to be paid $1.60 per quarter per share in dividends. However, the firm has encountered financial problems and has not paid any dividends for the past three quarters. How much will the firm have to pay per share of preferred next quarter if the firm also wishes to pay a common stock dividend? 6.40
Industrial Products has both common and noncumulative preferred stock outstanding. The dividends on these stocks are $1.10 per quarter per share of common and $2.25 per quarter per share of preferred. The company has not paid any dividends for the past two quarters but is expected to pay dividends on both the common and the preferred stock next quarter. What is the minimum amount the firm must pay per share to its preferred stockholders next quarter if it plans to pay a common dividend? 2.25
AZ stock closed today at $18.24, down .23. The dividend yield is 2.4 percent. What was yesterday’s closing price if the firm pays a constant $.40 per share quarterly dividend? 18.47
Today’s stock market report shows that SW Companies has a PE ratio of 9.8, a dividend yield of 2.2 percent, a closing price $29.86, and a net change of .11. What is the annual dividend amount? .66
According to today’s stock report, BL Lumber shares were up .14, the stock dividend yield is 2.6 percent, and the PE ratio is 9.8. What is the amount of the next annual dividend if yesterday’s closing price was $35.14? .917
TMS just paid an annual dividend of $2.84 per share on its stock. The dividends are expected to grow at a constant rate of 1.85 percent per year. If investors require a rate of return of 10.4 percent, what will be the stock price be in Year 11? 41.39
The next dividend payment by S&S will be $1.38 per share. The dividends are anticipated to maintain a 2.5 percent growth rate, forever. If the stock currently sells for $26.90 per share, what is the required return? 7.63
A particular stock sells for $43.20 share and provides a total return of 11.6 percent. The total return is evenly divided between the capital gains yield and the dividend yield. Assuming a constant dividend growth rate, what is the current dividend per share? 2.37
The VIC Co. has preferred stock outstanding that pays a $4.50 dividend annually and sells for $48.20 per share. What is the rate of return? 9.34
Russell Foods pays a fixed annual dividend of $2.28 a share. At a required return of 11.5 percent, the stock is valued at $43.20 a share. What is the dividend growth rate at this price? 6.22
JL Tools is a young start-up company. The company expects to pay its first dividend of $.20 a share in Year 6 with annual dividend increases of 1.5 percent thereafter. At a required return of 12 percent, what is the current share price? 1.08
Gamma Corp. is expected to pay the following dividends over the next four years: $7.50, $8.25, $15, and $1.80. Afterward, the company pledges to maintain a constant 4 percent growth rate in dividends, forever. If the required return is 14 percent, what is the current share price? 35.20
JLT is a mature manufacturing firm. The company just paid an annual dividend of $3.62, but management expects to reduce future payouts by 3.5 percent per year, indefinitely. What is this stock worth today at a required return of 12.5 percent? 21.83
KIT Kars stock currently sells for $54.10 per share and has a fixed 2.5 percent dividend growth rate. What was the amount of the last dividend paid if the required rate of return is 11 percent? 4.49
Juniper Trees has earnings per share of $1.38, all of which is added to retained earnings. What is the value of a share of its stock if the PE ratio is 9.8 and market-to-book ratio is 2.5? 13.52
Blasco International has sales of $389,700 and costs of $413,210. The company has 120,000 shares outstanding. What is the price-sales ratio if the stock has a book value of $19.20 per share and a market value per share of $8.60? 2.65

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