Finance Ch. 8

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?

$5.3424

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?

6.41

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

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?

constant growth model

Which one of the following applies to the dividend growth model?

Even if the dividend amount and growth rate remain constant, the value of a stock can vary.

Which one of the following statements is correct?

Stocks can have negative growth rates.

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

discount rate

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

Worthy Ware pays a constant dividend of $1.46 per 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 per share. What is one share of this stock worth today at a required return of 18.5 percent?

$11.44

Global Tek plans on increasing its annual dividend by 15 percent a year for the next four years and then decreasing the growth rate to 2.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. What is the current value of one share of this stock if the required rate of return is 17.4 percent?

$2.03

Avondale Homes has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now?

$2.08

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?

$6.52

The stock of Singleton Builders pays a constant annual dividend, sells for $56.07 per share, and has a market rate of return of 12.2 percent. What is the amount of the next annual dividend?

$6.84

Shook Fitness pays an annual dividend that increases by 1.8 percent per year, commands a market rate of return of 13.8 percent, and sells for $19.08 per share. What is the expected amount of the next dividend?

$2.29

Whitmarsh Hotels pays no dividend at the present time. Starting in Year 3, the firm will pay a dividend of $.25 per share for two years. After that, the company plans on paying a constant $.75 per share annual dividend indefinitely. How much should you pay per share to purchase this stock today at a required return of 13.8 percent?

$3.56

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?

$5.68

The current dividend yield on Ventana common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 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?

10.86%

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%

Monahan, Incorporated, has paid annual dividends of $.41, $.47, and $.53 per share over the past three years, respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share?

3.68

Schwartz Imports just paid an annual dividend of $2.69 per share and is expected to increase that amount by 5.2 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 12.6 percent at the time of your purchase?

38.24 (it says 40.23 is right but idk how)

Reyes has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true?

The stock has a negative capital gains yield

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

priced the same as a $1 perpetuity.

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?

12.16

Habibi Gourmet made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.54 per share. Secondly, all dividends after that will decrease by 1.16 percent annually. What is the value of this stock at a discount rate of 9 percent?

15.16

The dividend growth model:

requires the growth rate to be less than the required return.