FIN Final exam

What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

dividend growth

Three Corners Markets paid an annual dividend of $1.37 a share last month. Today, the company announced that future dividends will be increasing by 2.8 percent annually. If you require a return of 11.6 percent, how much are you willing to pay to purchase one share of this stock today?

$16.00

Michael's, Inc. just paid $1.80 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.00 percent. If you require a rate of return of 8.2 percent, how much are you willing to pay today to purchase one share of Michael's stock?

$44.57

The Sly Fox pays a constant dividend of $1.46 a share. The company announced today that it will continue to pay the dividend for another 2 years and then in year 3 it will pay a final liquidating dividend of $15.25 a share. What is one share of this stock worth today at a required return of 18.5%?

11.44

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 15 years because the firm needs to plow back its earnings to fuel growth. The company will pay a $9 per share dividend in 16 years and will increase the dividend by 5 percent per year thereafter. Required: If the required return on this stock is 13 percent, what is the current share price?

17.09

Flo's Flowers pays an annual dividend that is expected to increase by 2.1 percent per year. The stock commands a market rate of return of 13.8 percent and sells for $19.06 a share. What is the expected amount of the next dividend?

2.23

The next dividend payment by Hot Wings, Inc., will be $3.15 per share. The dividends are anticipated to maintain a 5 percent growth rate forever. Required: If the stock currently sells for $60 per share, what is the required return?

3.14/60 + .05 = 10.25

Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $3.50 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a 11.80 percent return on your equity investments?

3.5/.118 =29.66

Far Side Corporation is expected to pay the following dividends over the next four years: $12, $10, $7, and $2. Afterward, the company pledges to maintain a constant 5 percent growth rate in dividends forever. Required: If the required return on the stock is 15 percent, what is the current share price?

35.75

The next dividend payment by HG Enterprises will be $2.35 per share. The dividends are anticipated to maintain a 2.5 percent growth rate forever. The stock currently sells for $54.60 per share. What is the dividend yield?

4.3 percent

The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 16 percent a year for the next 4 years and then decreasing the growth rate to 4 percent per year. The company just paid its annual dividend in the amount of $2.30 per share. What is the current value of one share of this stock if the required rate of return is 7.80 percent?

95.49

Broker

An agent who arranges a transaction between a buyer and a seller of equity securities is called

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

Common

Which one of the following is computed by dividing next year's annual dividend by the current stock price?

Dividend Yield

The secondary market is best defined by which one of the following?

Market where outstanding shares of stock are resold

Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.94 a share. Secondly, all dividends after that will decrease by 1.25 percent annually. What is the value of this stock at a discount rate of 14.5 percent?

P0 = $1.94 / [.145 − (−.0125)] = $12.32

Future Motors is expected to pay a $3.30 a share annual dividend next year. Dividends are expected to increase by 2.75 percent annually. What is one share of this stock worth to you today if your required rate of return is 15 percent?

P0 = $3.30 / (.15 - .0275) = $26.94

How much are you willing to pay for one share of LBM stock if the company just paid a $1.23 annual dividend, the dividends increase by 3.1 percent annually, and you require a return of 16 percent?

P0 = [$1.23 ×(1 + .031)] / (.16 - .031) = $9.83

The current dividend yield on CJ's common stock is 1.89 percent. The company just paid a $1.23 annual dividend and announced plans to pay $1.27 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock?

R=0.0189+[($1.27-1.23)/$1.23]=0.0514, or 5.14 percent

Member

The owner of a trading license for the NYSE

What are the distributions of either cash or stock to shareholders by a corporation called?

dividends

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

voting by proxy