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Multiple Choice Quiz
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1

The Swift Water Co. is expected to increase its dividends at 18 percent for the next three years and then taper off to a constant 4 percent rate of increase. The value of Swift Water's stock should be computed using the two-stage dividend growth model.
A)True
B)False
2

In relation to the price-cash flow ratio, cash flow is commonly defined as net income plus depreciation.
A)True
B)False
3

It is common for various price ratio methods to produce differing valuations for a stock.
A)True
B)False
4

The president of Whistle Stop Cafés recently announced that the corporation will be liquidating. The company plans on paying a $5 dividend next year and a final dividend of $22.50 two years from now. If the discount rate is 16 percent, what is one share of this stock worth today?
A)$18.78
B)$19.51
C)$20.03
D)$21.03
E)$24.40
5

Pioneer Tours is a tourist company which specializes in tours of the Old West. The firm has seen a marked decline in its business and expects to see its dividends decline by 3 percent each year indefinitely. Last year, the firm paid a dividend of $.20 a share. The discount rate is 16 percent. How much should you be willing to pay per share to purchase some of Pioneer's stock?
A)$1.02
B)$1.05
C)$1.41
D)$1.46
E)$1.58
6

Winslow Amusement Park had an arithmetic average dividend growth rate of 8.8255 percent for the past 3 years. The dividends for the first two years in the period were $.38 and $.41 per share, respectively. What was the dividend in the third year?
A)$.39
B)$.41
C)$.43
D)$.45
E)$.47
7

Hi-Tek Electronics is a relatively young firm which plans on paying its first dividend next year in the amount of $.25 a share. Hi-Tek plans to steadily increase its dividend to $1 per share within the next three years and then maintain a constant dividend growth rate of 5 percent forever. Which valuation method should you use to determine the value of Hi-Tek's stock today?
A)dividend discount model
B)two-stage dividend growth model
C)constant growth rate model
D)sustainable growth rate model
E)constant perpetual growth model
8

One year ago, Castle Burgers, Inc., had a book value per share of $16.08. The earnings per share for this past year were $2.68. What was the residual income per share if the earnings growth rate was 5 percent and the required discount rate was 14 percent?
A)$.38
B)$.40
C)$.43
D)$.49
E)$.52
9

If the price-book ratio is greater than 1.0, then the:
A)firm has created value for its shareholders.
B)price-earnings ratio must equal 1.0.
C)firm has positive earnings per share.
D)cash flow per share must equal the earnings per share.
E)cash flow per share must be greater than the earnings per share.
10

The Value Line Investment Survey includes:
A)historical information only.
B)numerical values only.
C)both historical and projected information.
D)information on assets and liabilities but nothing on a firm's capital structure.
E)earnings and price information but nothing related to a firm's cash flows.





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