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| 1 | |
A stock with a current market price of $30 per share just paid a dividend of $2 per share. Dividends are expected to grow indefinitely at 5% per year. What is the required rate of return? |
| | A) | 5% |
| | B) | 7% |
| | C) | 12% |
| | D) | 14% |
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| 2 | |
Stock analysts have just predicted that a new invention will cause Hybrid Engine Company's earnings and dividends to grow 20% per year for each of the next two years. Beginning in year 3, Hybrid's growth rate will stabilize at 5% per year indefinitely. The required rate of return for Hybrid is 14% and the recent dividend was $1 per share. What is the current price of the company's stock? |
| | A) | $16.80 |
| | B) | $15.09 |
| | C) | $16.00 |
| | D) | $13.50 |
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| 3 | |
The current market price of Southwest Technology's common stock is $30 per share. Southwest just paid a $2 dividend. Its dividend is expected to grow by 5% in the coming year. The required rate of return for Southwest is 15%. What is Southwest's dividend yield and its capital gains yield? |
| | A) | 10%; 5% |
| | B) | 7%; 8% |
| | C) | 5%; 10% |
| | D) | 6.7%; 8.3% |
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| 4 | |
E-Energy has just developed the most efficient electric battery for bicycles on the market. As a result, it is expected that free cash flow to equity per share will be $4 at the end of year 1 and $6 at the end of year 2. Then, E-Energy's growth rate will stabilize at 5% per year indefinitely. E-Energy's cost of equity is 15%. What is E-Energy's market value per share? |
| | A) | $63.00 |
| | B) | $69.00 |
| | C) | $55.65 |
| | D) | $66.41 |
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| 5 | |
Heavenly Hotels, Inc. will not pay any dividends for the next three years. Heavenly will pay its first dividend of $2.00 per share at the end of year four then dividends are expected to grow 4% per year for the indefinite future. The required rate of return on the company's common stock is 14%.What is the intrinsic value per share today? |
| | A) | $20.80 |
| | B) | $20.00 |
| | C) | $12.32 |
| | D) | $13.50 |
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| 6 | |
Calculations of the intrinsic value of a stock using multistage growth models, compared to two-stage growth models, should be ______________. |
| | A) | more accurate, because the required rate of return can be calculated more accurately |
| | B) | less realistic, because both near-term and long-term forecasts of dividends and earnings must be included in the model |
| | C) | less accurate, because the calculations are more complicated and forecasts of multiple growth rates are required |
| | D) | more realistic, because multistage models allow for more flexible, and therefore more realistic, patterns of growth |
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| 7 | |
Which of the following must be true about the present value of growth opportunities (PVGO)? |
| | A) | If ROE > growth rate then PVGO > 0. |
| | B) | If ROE = required rate of return then PVGO = 0. |
| | C) | If ROE < plowback ratio then PVGO > 0. |
| | D) | If plowback ratio > growth rate then PVGO > 0. |
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| 8 | |
According to the constant growth dividend discount model, a stock's value increases if ______________. |
| | A) | the capitalization rate increases |
| | B) | the expected dividend per share decreases |
| | C) | the expected growth rate of dividends decreases |
| | D) | None of the above cause an increase in a stock's value |
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| 9 | |
The market capitalization rate for Ortiz and Co. is 15%. The firm projects an ROE of 18% and the coming year's earnings are expected to be $5.00 per share. The plowback ratio is 70%. The price per share of Ortiz and Co. stock is: |
| | A) | $10.00 |
| | B) | $15.00 |
| | C) | $54.35 |
| | D) | $62.50 |
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| 10 | |
KS Corp. has an ROE of 20% and a plowback ratio of 60%. The coming year's earnings are expected to be $4 per share. The firm's market capitalization rate is 16%. What is the present value of the firm's growth opportunities? |
| | A) | $15.00 |
| | B) | $25.00 |
| | C) | $40.00 |
| | D) | $65.00 |
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| 11 | |
The intrinsic value of a share of common stock is: |
| | A) | always greater than the book value of the stock |
| | B) | equal to the per share replacement cost |
| | C) | equal to the present value of expected future net cash flows |
| | D) | greater than the market price of the stock |
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| 12 | |
A company's stock price will increase with an increase in its plowback ratio if the company's ______________. |
| | A) | ROE > required rate of return |
| | B) | ROE < required rate of return |
| | C) | ROE > growth rate |
| | D) | ROE < plowback ratio |
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| 13 | |
Which of the following statements is most likely to be true for a zero-growth stock? |
| | A) | The stock's price one year from today should be the same as its current price. |
| | B) | The stock's dividend yield is greater than the stock's required rate of return. |
| | C) | The stock pays zero dividends. |
| | D) | Market value can always be increased by decreasing the plowback ratio. |
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| 14 | |
Holding all else equal, a company's P/E ratio increases if ______________. |
| | A) | growth opportunities increase |
| | B) | risk increases |
| | C) | current year EPS increases |
| | D) | capitalization rate increases |
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| 15 | |
Which of the following is not a commonly used ratio for comparative valuation? |
| | A) | Price to retained earnings ratio |
| | B) | Price to book ratio |
| | C) | Price to sales ratio |
| | D) | Price to cash flow ratio |
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