Finance Quiz 6

ABC Company's current EPS is $7.00. ROE is 15%. An appropriate required return on the stock is 14%. The firm has a payout ratio of 30%. If the company increases its plowback ratio, will it increase the stock price today?

Yes, since its ROE is higher than the required rate of return

ABC Company's current EPS is $7.00. ROE is 15%. An appropriate required return on the stock is 14%. The firm has a payout ratio of 30%. What is the dividend in year 1? A) $4.90 B) $5.41 C) $2.32 D) $2.10

$2.32

ABC Company's current EPS is $7.00. ROE is 15%. An appropriate required return on the stock is 14%. The firm has a payout ratio of 30%. What is the stock price today? A) $65.90 B) $66.29 C) $56.90 D) $23.20

$66.29

ZZZ corporations is currently paying dividends of $5.00 per share. These dividends are expected to grow at a 10% rate for the next five years and a 2% thereafter (forever). The appropriate discount rate is 12%. The ROE of the firm is 16.67%. What is the value of the stock today? A) $82.20 B) $77.35 C) $70.35 D) $53.67

$70.35

ZZZ corporations is currently paying dividends of $5.00 per share. These dividends are expected to grow at a 10% rate for the next five years and a 2% thereafter (forever). The appropriate discount rate is 12%. The ROE of the firm is 16.67%. What is the value of the stock at the point when the growth rate changes? A) $53.67 B) $70.35 C) $77.35 D) $82.20

$82.20

ABC Company's current EPS is $7.00. ROE is 15%. An appropriate required return on the stock is 14%. The firm has a payout ratio of 30%. What is the dividend growth rate? A) 15% B) 5% C) 10.5% D) 4.5%

10.5%

ZZZ corporations is currently paying dividends of $5.00 per share. These dividends are expected to grow at a 10% rate for the next five years and a 2% thereafter (forever). The appropriate discount rate is 12%. The ROE of the firm is 16.67%. What will be the plowback ratio of this firm beginning year 6? A) 40% B) 12% C) Not enough information given to estimate plowback ratio D) 88%

12%

ZZZ corporations is currently paying dividends of $5.00 per share. These dividends are expected to grow at a 10% rate for the next five years and a 2% thereafter (forever). The appropriate discount rate is 12%. The ROE of the firm is 16.67%. For how many years we need to estimate the dividend payments to be able to find the value of the stock? (not counting dividend at t=0) A) 4 B) 7 C) 5 D) 6

6

ZZZ corporations is currently paying dividends of $5.00 per share. These dividends are expected to grow at a 10% rate for the next five years and a 2% thereafter (forever). The appropriate discount rate is 12%. The ROE of the firm is 16.67%. What is the dividend in year 3? A) $7.33 B) $5.00 C) $6.05 D) $6.66

6.66

ABC Company's current EPS is $7.00. ROE is 15%. An appropriate required return on the stock is 14%. The firm has a payout ratio of 30%. For how many years we need to estimate the dividend payments to be able to find the value of the stock? (not counting dividend at t=0) A) 6 B) 5 C) 1 D) 2

1