Student Centre | Instructor Centre | Information Centre | Home

Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Stock Valuation

Quick Quiz 1

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	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, II and III
		C)	II and III only
		D)	I and III only
		E)	I and II only


2	Which of the following items does NOT usually appear in a National Post stock quote?
		A)	Closing price
		B)	Dividend yield
		C)	Capital gains rate
		D)	High and low price for the trading day
		E)	Number of shares traded


3	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)	$120
		C)	$115
		D)	$110
		E)	$100


4	Llano's stock is currently selling for $50.00. The expected dividend one year from now is $1.50 and the required return is 10%. What is this firm's dividend growth rate assuming the constant dividend growth model is appropriate?
		A)	7%
		B)	8%
		C)	9%
		D)	10%
		E)	11%


5	ABC Corporation's common stock dividend yield is 2.1%, it just paid a dividend of $1, and is expected to pay a dividend of $1.07 one year from now. Dividends are expected to grow at a constant rate indefinitely. What is the required rate of return on ABC stock?
		A)	9.0%
		B)	10.6%
		C)	9.3%
		D)	9.1%
		E)	11.2%


6	McIntyre's Moats, Inc. currently pays no dividends, but the firm will begin paying dividends in 3 years. The first dividend will be $2.50 and dividends are expected to grow at 2% thereafter. Given a current market price of $55.62, what is the required return on the stock?
		A)	4%
		B)	5%
		C)	6%
		D)	7%
		E)	8%


7	There is an election being held to fill 2 seats on the board of directors of a firm in which you hold stock. There are a total of 420 shares outstanding. If the election is conducted under cumulative voting and you own 120 shares, how many more shares must you buy to be assured of earning a seat on the board?
		A)	91
		B)	21
		C)	20
		D)	0
		E)	141


8	MSB stock is expected to sell for $22.00 two years from now. Supernormal growth of 5% is expected for the next 2 years. The current dividend is $1 and the required return is 15%. What constant growth rate is expected beginning in year 3?
		A)	9.5%
		B)	6.7%
		C)	8.1%
		D)	8.4%
		E)	6.5%


9	Suppose you own 500 shares of Biogen common stock. Two directors are to be elected. Since the firm uses cumulative voting, you can cast as many as ____ votes for a single director.
		A)	1,000
		B)	750
		C)	500
		D)	250
		E)	100


10	The dividend on Simple Motors common stock will be $2 in 1 year, $3.50 in 2 years, and $5.00 in 3 years. You can sell the stock for $75 in 3 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

2002 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Policy.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.