Chapter 8 Finance

Nasafi Lumber paid an annual dividend of $1.37 per share yesterday. Today, the company announced that future dividends will be increasing by 3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? $11.81 $13.53 $9.67 $12.16 $9.38

$12.16

Arcs and Triangles paid an annual dividend of $1.47 per share last month. The company is planning on paying $1.52, $1.58, and $1.60 per share over the next three years, respectively. After that, the dividend will be constant at $1.65 per share per year. What is the market price of this stock if the market rate of return is 12 percent? $13.98 $14.07 $13.54 $14.16 $15.01

$13.54

How much are you willing to pay for one share of Govender stock if the company just paid an annual dividend of $1.61, the dividends increase by 4.2 percent annually, and you require a return of 16.4 percent? $13.75 $15.36 $10.23 $13.20 $9.82

$13.75

Altitude Group is expected to pay an annual dividend next year of $2.71 per share. Dividends are expected to increase by 4.3 percent annually. What is one share of this stock worth at a required rate of return of 13.9 percent? $29.44 $28.23 $32.15 $20.33 $19.50

$28.23

Petropoulos Resorts common stock sells for $58.49 per share and pays an annual dividend that increases by 1.3 percent annually. The market rate of return on this stock is 12.6 percent. What is the amount of the last dividend paid? $6.60 $5.86 $6.52 $6.98 $5.64

$6.52

Martinez Freight wants to issue 5.4 percent preferred stock with a stated liquidating value of $100 per share. The company has determined that stocks with similar characteristics provide a return of 8.2 percent. What should the offer price be? $67.26 $61.38 $64.20 $65.85 $64.60

$65.85

Kiefer Service Company common stock sells for $36.84 per share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate? 10.95% 11.43% 11.06% 10.87% 11.18%

10.95%

Cabrera Carriers, Incorporated, common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 per share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield? 16.66% 16.48% 13.35% 14.20% 12.46%

12.46%

McCarty Corporation recently paid an annual dividend of $2.62 on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $28.12 per share. What is the market rate of return? 13.88% 14.07% 14.21% 14.37% 13.47%

13.47%

A preferred stock pays an annual dividend of $7.95 and sells for $48.89 per share. What is the rate of return? 6.15% 6.84% 7.95% 16.26% 9.54%

16.26%

The common stock of Shepard Auto sells for $47.92 per share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? 4.84% 6.41% 9.92% 6.14% 7.28%

6.41%

Sierra Slumber common stock is currently selling for $38.97. The last annual dividend paid was $1.26 per share and the market rate of return is 13.2 percent. At what rate is the dividend growing? 9.65% 10.67% 12.79% 11.08% 12.10%

9.65%

Which one of the following best describes Nasdaq? Largest U.S. stock market in terms of dollar trading volume Market where dealers buy at the asked price Market where the designated market makers are located at posts Computer network of securities dealers Market with three physical trading floors

Computer network of securities dealers

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate? Maximal growth model Constant growth model Capital pricing model Realized earnings model Realized growth model

Constant growth model

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? Dividend amount Number of future dividends, provided the total number of dividends is less than infinite Dividend growth rate Discount rate Both the discount rate and the dividend growth rate

Discount rate

What are the distributions of either cash or stock to shareholders by a corporation called? Coupon payments Retained earnings Dividends Capital payments Diluted profits

Dividends

A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? Auction Private Over-the-counter Regional Insider

Over-the-counter

An agent who arranges a transaction between a buyer and a seller of equity securities is called a: broker. floor trader. capitalist. principal. dealer.

broker

An agent who maintains an inventory from which he or she buys and sells securities is called a: broker. trader. capitalist. principal. dealer.

dealer

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a: designated market maker. dealer. specialist. supplemental liquidity provider. floor broker.

floor broker.

Which one of the following represents the capital gains yield as used in the dividend growth model? D1 D1/P0 P0 g g/P0

g

The secondary market is best defined as the market: in which subordinated shares are issued and resold. conducted solely by brokers. dominated by dealers. where outstanding shares of stock are resold. where warrants are offered and sold.

where outstanding shares of stock are resold.

Lescano Corporation is going to pay an annual dividend of $2.05 per share next year. This year, the company paid a dividend of $2 per share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent? $26.94 $28.00 $26.28 $27.33 $26.66

$27.33

Your local toy store just announced its annual dividend will be $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 per share in Year 3. At a discount rate of 18 percent, what should one share sell for today? $36.21 $31.48 $35.64 $39.09 $33.54

$33.54

The common stock of Salazar Insurance pays a constant annual dividend of $4.80 per share. What is one share of this stock worth at a discount rate of 13.3 percent? $40.89 $65.26 $36.09 $48.00 $57.60

$36.09

A preferred stock sells for $63.60 per share and provides a return of 8.40 percent. What is the amount of the dividend per share? $5.45 $5.25 $5.34 $5.43 $5.28

$5.34

Ernst & Frank stock is listed on Nasdaq. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? Private Auction Tertiary Secondary Primary

Primary

Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next three years, respectively. Beginning four years from now, the dividend is expected to increase by 3.25 percent annually. What is one share of this stock worth today at a discount rate of 12.5 percent? $42.92 Correct $43.40 $45.12 $45.88 $46.50

$42.92

Mirza's just paid its annual dividend of $1.58 per share. The dividends are expected to grow at 2.7 percent per year indefinitely. What will the price of this stock be in 7 years if investors require an annual return of 15.2 percent? $15.08 $15.24 $15.83 $15.64 $15.33

$15.64

Valenica Corporation has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? Right to share in company profits prior to other shareholders Right to elect the corporate directors Right to vote on proposed mergers Right to all residual income after the common dividends have been paid Right to a permanent seat on the board of directors

Right to share in company profits prior to other shareholders

Mockingbird Resources is expected to pay a dividend of $2.71 per share in one year. Thereafter, dividends will grow two percent per year forever. The current stock price is $19.60. If you require a return of 15 percent per year, should you buy the stock today? Why or why not? No; The stock has a present value of $20.85 per share. Yes; The stock has a present value of $20.85 per share. No; The stock has a present value of $18.43 per share. Yes; The stock has a present value of $18.43 per share. No; The stock has a present value of $23.97 per share.

Yes; The stock has a present value of $20.85 per share.