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| 1 | |
The dividend yield reported as Yld.% in The Wall Street Journal quotation is calculated as follows: |
| | A) | (dividends / hi) |
| | B) | (dividends / lo) |
| | C) | (dividends / close) |
| | D) | None of the above |
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| 2 | |
The Wall Street Journal quotation for a company has the following values: Div: 2.28, PE: 20, Close: 80. Calculate the dividend pay out ratio for the company. |
| | A) | 57% |
| | B) | 12% |
| | C) | 74% |
| | D) | 174% |
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| 3 | |
Sam's Company expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two and then be sold for $136 per share. If the required rate on the stock is 20%, what is the current value of the stock? |
| | A) | $100.10 |
| | B) | $105.69 |
| | C) | $110.00 |
| | D) | $120.29 |
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| 4 | |
The constant dividend growth formula P0 = DIV1/(r-g) assumes: |
| | A) | The dividends are growing rate at a constant rate g forever. |
| | B) | r > g |
| | C) | g is never negative. |
| | D) | Both A and B |
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| 5 | |
Dividend growth rate for a stable firm can be estimated as: |
| | A) | Plow back rate * the return on equity (ROE) |
| | B) | Plow back rate / the return on equity (ROE) |
| | C) | Plow back rate +the return on equity (ROE) |
| | D) | Plow back rate - the return on equity (ROE) |
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| 6 | |
Franks Co. is currently paying a dividend of $2.20 per share (DIV0). The dividends are expected to grow at 25% per year for the next four years and then grow 5% per year thereafter. Calculate the expected dividend in year 6. |
| | A) | $5.37 |
| | B) | $2.95 |
| | C) | $5.92 |
| | D) | $8.39 |
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| 7 | |
The value of the stock: |
| | A) | Increases as the dividend growth rate increases |
| | B) | Increases as the required rate of return decreases |
| | C) | Increases as the required rate of return increases |
| | D) | Both A and B |
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| 8 | |
Companies with higher expected growth opportunities usually sell for: |
| | A) | Lower P/E ratio |
| | B) | Higher P/E ratio |
| | C) | A price that is independent of P/E ratio |
| | D) | A price that the dependent upon the payment ratio |
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| 9 | |
A high proportion of the value a growth stock comes from: |
| | A) | Past dividend payments |
| | B) | Past earnings |
| | C) | PVGO (Present Value of the Growth Opportunities) |
| | D) | Both A and B |
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| 10 | |
FastGrow is a no growth firm and has two million shares outstanding. It is expected to earn a constant $20 million per year on its assets. If all earnings are paid out as dividends and the cost of capital is 10%, calculate the current price per share for the stock. |
| | A) | $200 |
| | B) | $100 |
| | C) | $150 |
| | D) | $50 |
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| 11 | |
Discounted cash flow formulas work for the valuation of: |
| | A) | Stocks with constant dividend growth |
| | B) | Businesses |
| | C) | Stocks with super normal dividend growth |
| | D) | All of the above |
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| 12 | |
The present value of free cash flow is $5 million and the present value of the horizon value is $10 million. Calculate the present value of the business. |
| | A) | $5 million |
| | B) | $10 million |
| | C) | $15 million |
| | D) | None of the above |
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| 13 | |
Shareholders receive cash from the firm in the form of dividends and capital gains. |
| | A) | True |
| | B) | False |
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| 14 | |
The return that is expected by investors from a common stock is often called its market capitalization rate. |
| | A) | True |
| | B) | False |
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| 15 | |
The value of a share of common stock is theoretically equal to the discounted stream of free cash flows per share. |
| | A) | True |
| | B) | False |
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| 16 | |
Knight Inc. is expected to pay a $1.80 dividend next year. The dividend in year 2 is expected to be $2.10. The dividend in year 3 is expected to be $2.50. After that, the dividend is expected to grow at a constant rate of 2%. The cost of capital is 10%. What is Knight's stock price? |
| | A) | $27.02 |
| | B) | $29.20 |
| | C) | $31.88 |
| | D) | $32.12 |
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| 17 | |
K&K Corp. just paid a dividend of $2.00 (DIV0). It is expected to grow at 5% for three years. Then, it will grow at a constant rate of 2%. If the cost of capital is 8%, what is the current stock price? |
| | A) | $31.88 |
| | B) | $34.60 |
| | C) | $36.92 |
| | D) | $39.36 |
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| 18 | |
Smokes Inc. just paid a dividend of $3.00 (DIV0). Because of decreasing demand, the dividend is expected to decrease at a constant rate of 4%. The cost of capital is 11%. What is the stock price? |
| | A) | $0.00 |
| | B) | $19.20 |
| | C) | $20.00 |
| | D) | $44.57 |
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| 19 | |
Find the market capitalization rate if the dividend in year 1 is expected to be $3.20, the current stock price is $42, and the growth rate is 4%. |
| | A) | 2% |
| | B) | 4% |
| | C) | 8% |
| | D) | 12% |
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| 20 | |
You are planning to buy a share of stock. You expect next year's dividend to be $1.25 (DIV1). You plan to sell the stock at the end of year 2 for $42.50 (after receiving the year 2 dividend of $1.50). What is the maximum price you would be willing to pay for this investment if your required rate of return is 12%? |
| | A) | $30.00 |
| | B) | $32.56 |
| | C) | $36.19 |
| | D) | $42.50 |
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| 21 | |
Given a stock price of $39.77 and an expected return to shareholders of 12.4%, what is the likely growth rate if the annual dividend next year is expected to be $3.50? |
| | A) | 0.0% |
| | B) | 3.6% |
| | C) | 8.4% |
| | D) | 12.4% |
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| 22 | |
A stock is trading for $35.00 and the firm has no growth potential. An analysis reveals that the price from a new growth oriented investment would be $55.00. What is the PVGO of this new project? |
| | A) | $0.00 |
| | B) | $20.00 |
| | C) | $35.00 |
| | D) | $55.00 |
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| 23 | |
Spring Co. is expected to pay a dividend or $4.00 per share out of earnings of $7.50 per share. If the required rate of return on the stock is 15% and dividends are growing at a current rate of 8% per year, calculate the present value of the growth opportunity for the stock (PVGO)? |
| | A) | $57.17 |
| | B) | $50.00 |
| | C) | $26.66 |
| | D) | $7.14 |
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