Investments Chapter 6 Math
A firm has paid annual dividends of $1.32, $1.43, $1.55, $1.62, $1.64, and $1.70 per share over the past 6 years, respectively. What is the geometric average growth rate for these dividends? A. 5.19 percent B. 5.28 percent C. 5.48 percent D. 5.57 percent E. 5.74 percent
A
Barn Wood Interiors announced today that it is going out of business. As of today, no more regular dividends will be paid. The firm will, however, pay two liquidating dividends. The first will be paid one year from now in the amount of $14 a share. The second and final payment will be paid two years from now at an estimated $38 a share. What is the value of this stock today at a discount rate of 18.7 percent? A. $38.76 B. $39.03 C. $41.41 D. $43.78 E. $46.01
A
Home Interiors has net income of $248,000. The firm has decided to pay $160,000 of that income out to the shareholders. What is the firm's retention ratio? A. .355 B. .412 C. .450 D. .588 E. .645
A
Miller's Farm has 120,000 shares of stock outstanding, sales of $850,000, and net income of $55,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given this information, what should be the current stock price? A. $7.24 B. $8.87 C. $14.85 D. $14.57 E. $15.21
A
Periscope Adventures last annual dividend was $0.63 a share. The firm will increase the dividend by 7 percent for the next 4 years and thereafter increase the dividend by 4 percent annually. What is this stock worth today if the required return is 11 percent? A. $10.38 B. $11.06 C. $11.30 D. $13.97 E. $14.08
A
Precision Engineering recently announced that its next annual dividend will be $1.20 per share with later dividends increasing by 2.5 percent annually. What is the current value of this stock to you if you require a 12 percent rate of return? A. $12.63 B. $12.95 C. $13.05 D. $13.37 E. $13.72
A
Quality Home Made Ice Cream has plans to pay decreasing annual dividends of $1.50, $1.25, and $1.00 over the next three years, respectively. After that, the firm will increase the dividend by 4 percent each year. What is the value of this stock today at a discount rate of 9 percent? A. $19.26 B. $19.54 C. $19.69 D. $19.93 E. $20.48
A
Wholesale Foods common stock is valued at $11.05 per share. The firm pays annual dividends which increase at a constant rate. The last dividend paid was $1.20. The required return is 12 percent. What is the dividend growth rate? A. 1.03 percent B. 1.67 percent C. 3.47 percent D. 3.59 percent E. 4.00 percent
A
Roy's Markets has net income of $164,000. The firm has 200,000 shares of common stock outstanding. The dividend for this year is $0.61 per share. What is the retention ratio? A. .220 B. .256 C. .314 D. .774 E. .780
B
The Back Room just paid an annual dividend of $1.65 a share. The firm expects to pay dividends forever and to increase the dividend by 3 percent annually. What is the expected value of this stock five years from now if the discount rate is 14 percent? A. $17.39 B. $17.91 C. $18.06 D. $18.52 E. $19.08
B
A firm has net income of $198,500 and total equity of 1.15 million. There are 220,000 shares of stock outstanding at a price per share of $14.80. What is the firm's price-earnings ratio? A. 16.21 B. 16.40 C. 17.09 D. 17.28 E. 17.94
B
Beach & Company reported net income of $40 million for last year. Depreciation expense totaled $18 million and capital expenditures came to $8 million. Free cash flow is expected to grow at a rate of 5% for the foreseeable future. Beach faces a 40% tax rate and has a 0.40 debt to equity ratio with $200 million (market value) in debt outstanding. Beach's equity beta is 1.25, the risk-free rate is currently 4.5% and the market risk premium is estimated to be 8.0%. What is the current total value of Beach & Company (in millions)? A. $655.90 B. $730.18 C. $840.95 D. $919.46 E. $1,025.95
B
Blue Water Tours has paid annual dividends of $2.10, $2.12, $2.15, $2.15, and $2.22 over the past 5 years, respectively. What is the arithmetic average growth rate for these dividends? A. 1.08 percent B. 1.41 percent C. 1.57 percent D. 1.70 percent E. 1.73 percent
B
Electronics Galore has historically had a P/E ratio of 23.4. This ratio is considered a good estimate of the future ratio. The firm currently has EPS of $1.68. These earnings are expected to increase by 4.2 percent next year. What is the expected price of this stock one year from now? A. $39.31 B. $40.96 C. $41.25 D. $42.78 E. $43.79
B
Oak Supply has earnings per share of $1.22. The firm has $840,000 in equity and 60,000 shares of stock outstanding. What is the return on equity? A. 7.92 percent B. 8.71 percent C. 9.09 percent D. 9.47 percent E. 10.36 percent
B
A firm has a current book value per share of $21.10 and a market price per share of $37.57. Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent. What is the required rate of return on this stock? A. 14 percent B. 15 percent C. 16 percent D. 17 percent E. 18 percent
C
Leslie Apparel has a current book value per share of $5.15 and current earnings per share of $1.13. The required return is 14 percent and the expected earnings growth rate is 4.5 percent. What is one share of this stock worth today? A. $7.44 B. $8.77 C. $9.99 D. $10.65 E. $11.13
C
Best Value Outlet recently announced that it intends to pay dividends of $0.40, $0.60, $0.75, and $1.00 per share over the next four years, respectively. After that, the plan is to increase the dividend by 3.5 percent annually. What is the current value of this stock if the applicable discount rate is 13.5 percent? A. $6.44 B. $7.83 C. $8.17 D. $9.55 E. $13.10
C
DT Industries stock is valued at $10.40 a share. The firm pays annual dividends at an increasing rate of 2.5 percent annually. Next year's dividend will be $1.05 per share. What is the required return on this stock? A. 10.00 percent B. 11.50 percent C. 12.60 percent D. 13.50 percent E. 14.80 percent
C
Dennison Mfg. pays annual dividends. For the past six years, the firm has paid dividends of $1.10, $1.12, $1.25, $1.28, $1.30, and $1.40, respectively. What is the geometric average dividend growth rate for this time period? A. 3.51 percent B. 4.10 percent C. 4.94 percent D. 5.07 percent E. 6.03 percent
C
Detroit Imports has a dividend payout ratio of 40 percent and annual dividends of $2.60 per share. What is the retention ratio? A. .167 B. .208 C. .600 D. .735 E. .792
C
Factory Stores pays annual dividends and increases those dividends by 2 percent each year. The stock is currently valued at $12 a share and has a required return of 16 percent. You own 400 shares of this stock. What is the total amount of dividend income you should expect to receive next year? A. $646 B. $659 C. $672 D. $685 E. $699
C
Knit 'n Needle started paying dividends 4 years ago. The annual dividends thus far have been $0.25, $0.27, $0.30, and $0.33, respectively. What is the arithmetic average dividend growth rate? A. 6.33 percent B. 8.58 percent C. 9.70 percent D. 10.80 percent E. 11.17 percent
C
Mountain Top Nursery is a relatively young firm which just paid its first annual dividend of $0.30 a share. Management projects dividend increases of 15 percent per year for five years followed by a constant growth rate of 3.0 percent annually. What is this stock worth today if the applicable discount rate is 12.5 percent? A. $3.59 B. $4.66 C. $5.23 D. $6.01 E. $6.59
C
The Diamond Outlet has current earnings per share of $1.96 and an expected earnings growth rate of 2.2 percent. The required return on the stock is 13 percent and the current book value per share is $12.70. What is the current market value of this stock? A. $15.07 B. $15.62 C. $15.96 D. $16.31 E. $16.67
C
The Potato Patch has a retention ratio of .80, dividends of $52,000, and total equity of $3.3 million. What is the firm's sustainable rate of growth? A. 1.58 percent B. 4.22 percent C. 6.30 percent D. 7.38 percent E. 8.54 percent
C
The Satellite Shoppe has current sales per share of $8.40. The sales per share are expected to increase at an annual rate of 12 percent. The historical P/E ratio is 16.2 and the historical P/S ratio is 7.6. What is the expected price of this stock one year from now? A. $59.72 B. $66.67 C. $71.50 D. $115.18 E. $129.00
C
The common stock of JL Recyclers has a required return of 12 percent and a current value of $18.72. The company pays its dividend annually and increases the amount by 4 percent each year. You own 300 shares of this stock. What was the total amount of the last dividend you received? A. $319 B. $360 C. $432 D. $480 E. $513
C
Ultra Fine Furnishings is in the process of selling its peripheral businesses and focusing on its upscale clients. In conjunction with this reorganization, the dividend will be decreased by 10 percent for the next three years. After that, the dividend will resume increasing at an annual rate of 5 percent. The required return on this stock is 14 percent and the last dividend paid was $2.40 a share. What is one share of this stock worth today? A. $17.34 B. $18.08 C. $18.35 D. $19.68 E. $20.72
C
Upwind Tours just announced that it will pay an annual dividend of $3.60 a share one year from now. Two years from now, the company expects to pay a $28 a share liquidating dividend. After that, the company will cease operations. What is the current value per share at a discount rate of 12.5 percent? A. $23.88 B. $24.97 C. $25.32 D. $28.09 E. $29.16
C
Wilkinson and Daughters has net income of $415,400, total assets of $2.2 million, and total liabilities of $1.08 million. The company paid $270,000 in dividends. What is the firm's sustainable rate of growth? A. 9.69 percent B. 11.06 percent C. 12.98 percent D. 13.93 percent E. 14.15 percent
C
Art Supplies has a net income of $138,600. The firm has $1.25 million in assets and $500,000 in liabilities. What is the return on equity? A. 13.87 percent B. 15.09 percent C. 16.44 percent D. 18.48 percent E. 21.21 percent
D
Historically, Jones Trucking has had a P/E ratio of 14.6. The firm has current net income of $92,000 with 85,000 shares of stock outstanding. The EPS growth rate is 4.5 percent. What is the expected price of this stock one year from now? A. $15.32 B. $15.85 C. $16.41 D. $16.51 E. $17.10
D
Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now. The firm's liquidation plan calls for annual dividends of $3, $6, and $36 over the next 3 years, respectively. What is the current value of this stock given a discount rate of 14 percent? A. $26.94 B. $27.16 C. $28.46 D. $31.50 E. $36.29
D
Lambert Corporation reported net income of $60 million for last year. Depreciation expense totaled $20 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 4.5% for the foreseeable future. Lambert faces a 40% tax rate and has a 0.45 debt to equity ratio with $185 million (market value) in debt outstanding. Lambert's equity beta is 1.25, the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%. What is the current total value of Lambert's equity (in millions)? A. $655.90 B. $731.20 C. $840.95 D. $951.26 E. $1,025.95
D
Main Street Antiques is planning on paying an annual dividend of $2.20 per share next year. The company is slowly downsizing and is decreasing its dividend by 3 percent annually. What is the current value of this stock at a discount rate of 8 percent? A. $18.86 B. $19.12 C. $19.78 D. $20.00 E. $20.57
D
McKenzie, Inc. reported net income of $8.5 million for last year. Depreciation expense totaled $5 million and capital expenditures came to $2 million. Free cash flow is expected to grow at a rate of 2.5% for the foreseeable future. McKenzie faces a 40% tax rate and has a 0.50 debt to equity ratio with $20 million (market value) in debt outstanding. McKenzie's equity beta is 1.4, the risk- free rate is currently 5% and the market risk premium is estimated to be 7.5%. McKenzie has 10 million shares of common stock outstanding. What is the current value of a share of McKenzie stock? A. $6.62 B. $7.32 C. $8.45 D. $9.12 E. $10.25
D
Newcomer Mills is a relatively new firm which will retain all of its earnings for the next four years. Four years from now, the firm expects to pay its first dividend of $0.25 a share. After that, it intends to increase the dividend by 4 percent annually. What is the value of this stock today at a discount rate of 12 percent? A. $1.53 B. $1.78 C. $2.04 D. $2.22 E. $2.60
D
Over the past 4 years, a local firm has paid annual dividends of $1.52, $1.55, $1.60, and $1.68. What is the arithmetic average dividend growth rate? A. 2.69 percent B. 2.98 percent C. 3.24 percent D. 3.40 percent E. 3.62 percent
D
Over the past 5 years, DL Insulation has paid annual dividends of $1.40, $1.55, $1.70, $1.73, and $1.77 per share. What is the geometric average dividend growth rate for this period? A. 4.80 percent B. 5.79 percent C. 5.88 percent D. 6.04 percent E. 6.33 percent
D
A stock sells for $12.36 a share and has a required return of 9 percent. Dividends are paid annually and increase at a constant 3 percent per year. What is the amount of the last dividend paid? A. $0.46 B. $0.50 C. $0.59 D. $0.63 E. $0.72
E
Blue Water Tours just paid an annual dividend of $0.80 a share. The firm has a policy of increasing the dividend by 3.5 percent annually. What is the current value of this stock at a discount rate of 11.5 percent? A. $9.52 B. $9.78 C. $9.91 D. $10.02 E. $10.35
E
Stuart, Inc. reported net income of $20 million for last year. Depreciation expense totaled $15 million and capital expenditures came to $5 million. Free cash flow is expected to grow at a rate of 6% for the foreseeable future. Stuart faces a 40% tax rate and has a 0.30 debt to equity ratio with $75 million (market value) in debt outstanding. Stuart's equity beta is 1.1, the risk-free rate is currently 6% and the market risk premium is estimated to be 8.0%. What is the current value (in millions) of Stuart's equity? A. $237.34 B. $352.42 C. $427.42 D. $556.79 E. $689.10
B
The Grand Isle has 12,000 shares of stock outstanding at a market price of $31.60 per share. The book value per share is $12.08. The firm has earnings per share of $1.86 and a dividend payout ratio of .40. What is the firm's sustainable rate of growth? A. 8.88 percent B. 9.24 percent C. 9.71 percent D. 10.57 percent E. 10.86 percent
B
The Retail Box has an historical P/CF ratio of 21.5. The current CFPS is $1.42 and the projected CFPS growth rate is 5.6 percent. The current EPS is $1.02. What is the expected price of this stock one year from now? A. $30.53 B. $32.24 C. $32.88 D. $34.11 E. $34.20
B
The Shoe Box will not pay a dividend for the next two years. The following two years, it will pay annual dividends of $1 per share. Starting in year 5, the dividends will increase by 4 percent annually. The discount rate is 8 percent. What is the value of this stock today? A. $18.18 B. $20.64 C. $22.63 D. $24.08 E. $27.09
B
The common stock of A.G. Tailor has a required return of 16 percent. The latest press release stated that last year's dividend was $0.90 per share and that future dividends will increase by 15 percent for the following 3 years. After that, the dividend growth rate will be 3 percent indefinitely. What is one share of this stock worth to you today? A. $8.42 B. $9.60 C. $10.26 D. $10.75 E. $12.03
B
The last dividend paid by New Technologies was an annual dividend of $1.40 a share. Dividends for the next 3 years will be increased at an annual rate of 8 percent. After that, dividends are expected to increase by 3 percent each year. The discount rate is 16 percent. What is the current value of this stock? A. $10.40 B. $12.60 C. $13.33 D. $14.10 E. $15.55
B
Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually. The discount rate is 15 percent. What will the value of this stock be 5 years from today? A. $6.96 B. $7.04 C. $7.10 D. $7.18 E. $7.25
C
The Brown Jug has paid annual dividends of $0.61, $0.64, $0.71, $0.82, and $0.88 per share over the past 5 years, respectively. What is the geometric average dividend growth rate for this period? A. 8.51 percent B. 8.97 percent C. 9.10 percent D. 9.59 percent E. 10.21 percent
D
The Fish House increases its dividend each year. The next annual dividend is expected to be $2.32 a share. Future dividends will increase by 4.0 percent annually. What is the current value of this stock if the discount rate is 12 percent? A. $28.91 B. $28.05 C. $28.78 D. $29.00 E. $29.18
D
The current book value per share of B.L. Black & Sons is $5.35 and the required return on the stock is 15.5 percent. The firm expects earnings per share of $2.25 next year with annual earnings growth of 4.5 percent. What is the current market value of this stock? A. $9.16 B. $10.91 C. $13.88 D. $18.27 E. $20.30
D
Currently, Southern Foods has sales of $1.32 million, net profit of $521,400, and 125,000 shares of stock outstanding. The sales and net profit are each expected to grow by 6 percent annually. The historical P/S ratio is 7.8. What is the expected price of this stock one year from now? A. $32.54 B. $34.49 C. $82.37 D. $85.15 E. $87.31
E
L.B. Jay has net income of $38,000, total assets of $437,000, total liabilities of $208,000, and a price-book ratio of 3.8. There are 60,000 shares of stock outstanding. What is the firm's price-earnings ratio? A. 18.72 B. 19.11 C. 19.28 D. 20.80 E. 22.90
E
PT Boats plans to pay a $2.25 a share dividend at the end of each of the next 2 years. At the end of year 3, it will pay a final liquidating dividend of $15 a share. After that, the company plans to close its doors permanently. What is the current value of this stock at a discount rate of 15 percent? A. $9.89 B. $10.26 C. $11.54 D. $12.47 E. $13.50
E
Southern Foods just paid an annual dividend of $1.10 a share. Management estimates the dividend will increase by 10 percent a year for the next four years. After that, the annual dividend growth rate is estimated at 3.2 percent. The required rate of return is 12 percent. What is the value of this stock today? A. $12.55 B. $13.00 C. $14.54 D. $15.81 E. $16.21
E
The Rug Barn has paid annual dividends of $1.30, $1.36, $1.40, $1.42, and $1.45 over the last 5 years, respectively. What is the geometric average dividend growth rate? A. 1.98 percent B. 2.11 percent C. 2.39 percent D. 2.55 percent E. 2.77 percent
E
Wilderness Adventures has earnings per share of $2.45 and dividends per share of $1.05. The total equity of the firm is $850,000. There are 40,000 shares of stock outstanding. What is the sustainable rate of growth? A. 2.14 percent B. 3.31 percent C. 4.97 percent D. 5.32 percent E. 6.59 percent
E
Wilson's Furniture is experiencing good growth so has decided to commence paying dividends starting next year. The first dividend will be $0.50 a share with annual increases of 4 percent in the dividend amount. The discount rate is 10 percent. What will the value of this stock be four years from now? A. $8.50 B. $8.72 C. $9.03 D. $9.23 E. $9.75
E
You are considering buying shares of stock in the Steel Mill. The forecast for the firm is steady growth over the next decade. The firm just paid its annual dividend of $1.42 per share and has plans to increase that amount by 4 percent annually indefinitely. You require a 12.5 percent return on this type of security. What is your estimate of the value of this stock ten years from now? A. $24.13 B. $24.38 C. $24.73 D. $25.06 E. $25.72
E