Quiz 3 Finance (8)

Roy's Welding Supplies common stock sells for $38 a share and pays an annual dividendthat increases by 3 percent annually. The market rate of return on this stock is 8.20percent. What is the amount of the last dividend paid?

$1.92

Zylo, Inc. preferred stock pays a $7.50 annual dividend. What is the maximum price you are willing to pay for one share of this stock today if your required return is 7.5 percent?

$100.00

Sessler Manufacturers made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.75 a share. Secondly, all dividends after that will decrease by 1.5% annually. What is the maximum amount you should pay to purchase a share of this stock today if you require a 14% rate of return?

$11.29

Last year, Hansen Delivery paid an annual dividend of $3.20 per share. The company hasbeen reducing the dividends by 10 percent annually. How much are you willing to pay topurchase stock in this company if your required rate of return is 13 percent?

$12.52

The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12% annual return?

$13.75

Douglass Gardens pays an annual dividend that is expected to increase by 3.6 percent peryear. The stock commands a market rate of return of 12.6 percent and sells for $28.50 ashare. What is the expected amount of the next dividend?

$2.57

Free Motion Enterprises paid a $2.20 per share annual dividend last week. Dividends are expected to increase by 3.75% annually. What is one share of this stock worth to you today if your required rate of return is 15%

$20.29

Bonnie's Ice Cream is expecting its ice cream sales to decline due to the increased interestin healthy eating. Thus, the company has announced that it will be reducing its annualdividend by 2 percent a year for the next five years. After that, it will maintain a constantdividend of $2 a share. Last year, the company paid $2.35 per share. What is this stockworth to you if you require a 9.5 percent rate of return?

$21.90

Bechtel Machinery stock currently sells for $65 per share. The market requires a 14% return on the firm's stock. The company maintains a constant 8% growth rate in dividends. What was the most recent annual dividend per share paid on this stock?

$3.61

Hardwoods, Inc. is a mature manufacturing firm. The company just paid a $10 dividend,but management expects to reduce the payout by 9 percent each year, indefinitely. Howmuch are you willing to pay today per share to buy this stock if you require a 15 percentrate of return?

$37.92

Suppose you know a company's stock currently sells for $85 per share and the required return on the stock is 10%. You also know that the total return on the stock is every divided between a capital gains yield and a dividend yield. What is the current dividend if its the companies policy to always maintain a constant growth rate in its dividends?

$4.05

You want to purchase some shares of Green World stock but need a 15 percent rate ofreturn to compensate for the perceived risk of such ownership. What is the maximum youare willing to spend per share to buy this stock if the company pays a constant $0.90annual dividend per share?

$6.00

Marie owns shares of Deltona Productions preferred stock which she says provides herwith a constant 14.3 percent rate of return. The stock is currently priced at $45.45 a share.What is the amount of the dividend per share?

$6.50

A stock pays a constant annual dividend and sells for $56.10 a share. If the market rate ofreturn on this stock is 12.5 percent, what is the amount of the next annual dividend?

$7.01

Miller Brothers Hardware paid an annual dividend of $0.95 per share last month. Today, the company announced that future dividends will be increasing by 2.6% annually. If you require a 13% rate of return, how much are you willing to pay to purchase one share of this stock today?

$9.37

How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 2.5% annually, and you require a 10% rate of return?

$9.57

Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8% per year. The stock is currently selling for $26.91 a share. What is the market rate of return?

14.60%

Morristown Industries has an issue of preferred stock outstanding that pays a $12.60dividend every year in perpetuity. What is the required return if this issue currently sells for $80 per share?

15.75%

The preferred stock of Rail Lines, Inc., pays an annual dividend of $12.25 and sells for$59.70 a share. What is the rate of return on this security?

20.52%

The next dividend payment by Hillside Markets will be $2.35 per share. The dividends areanticipated to maintain a 4.5 percent growth rate forever. The stock currently sells for $65per share. What is the dividend yield?

3.62%

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

A decrease in all stock values

The Blue Marlin is owned by a group of 5 shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outshining shares of one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?

50% plus one vote

Shares of Hot Donuts common stock are currently selling for $32.35. The last annualdividend paid was $1.25 per share and the market rate of return is 10.7 percent. At whatrate is the dividend growing?

6.58%

The current dividend yield on Clayton's Metals common stock is 3.2%. The company just paid an $1.48 annual dividend and announced plans to pay $1.54 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?

7.25%

Denver Shoppes will pay an annual dividend of $1.46 a share next year with future dividends increasing by 4.2% annually. What is the market rate of return if the stock is currently selling for $42.10 a share?

7.67%

The common stock of Auto Deliveries sells for $28.16 a share. The stock is expected to pay $1.35 per share next year when the annual dividend is distributed. The firm has established a pattern of increasing its dividends by 3% annually and expects to continue doing so. What is the market rate of return on this stock?

7.79%

Home Canning Products common stock sells for $41.00 a share and has a market rate ofreturn of 12.8 percent. The company just paid an annual dividend of $1.15 per share. Whatis the dividend growth rate?

9.72%

Which of the following transactions occurs in the primary market?

A purchase of newly issued stock from AT&T

Which one of the following is an underlying assumption of the dividend growth model?

A stock's value is equal to the discounted present value of the future cash flows which it generates

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

Broker

Which of the following is the rate at which a stock's price is expected to appreciate?

Capital gains yield

The person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n):

Commission broker

Which one of the following statements related to corporate dividends is correct?

Corporate shareholders may receive a tax break on a portion of their dividend income

Which of the following rights is never directly granted to all shareholders of a publicly-held corporation?

Determining the amount of the dividend to be paid per share

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 model

What are the distributions to shareholders by a corporation called?

Dividends

A floor broker on the NYSE does which of the following?

Executes orders on behalf of a commission broker

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

Floor trader

The divided growth model: I. Assumes that dividends increase at a constant rate forever II. Can be used to compute a stock price at any point in time III. Can be used to value zero-growth stocks IV. Requires the growth rate to be less than the required return

I, II, III, and IV

Supernatural growth is a growth rate that:

Is unsustainable over the long term

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

Market where outstanding shares of stock are resold

The owner if one of the 1,366 trading licenses for the NYSE is called a:

Member

National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past 15 years and is expected to continue paying $1 a share long into the future. Given this, one share of the firm's stock is:

Priced the same as a $1 perpetuity

A market maker who acts as a dealer in one or more securities on the floor of the NYSE is called a:

Specialist

Which of the following statements is correct?

The capital gains yield is the annual rate of change in a stock's price

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

Which of the following represents the capital gains yield as used in the dividend growth model?

g