Topic 2A Finance Practice Questions and Homework Questions

If Fledgling Electronics is selling for $200 per share today and is expected to sell for $210 one year from now, what is the expected return if the dividend one year from now is forecasted to be $8.00?

0.09

Fledgling Electronics is forecasted to pay a $5.00 dividend at the end of year one and a $5.50 dividend at the end of year two. At the end of the second year the stock will be sold for $121. If the discount rate is 15%, what is the price of the stock?

$100

Company X is expected to pay an end-of-year dividend of $5 a share. After paying the dividend, its stock is expected to sell at $110. If the market capitalization rate is 8%, what is the current stock price?

$106.48

Current forecasts are for XYZ Company to pay dividends of $3, $3.24, and $3.50 over the next three years, respectively. At the end of three years you anticipate selling your stock at a market price of $94.48. What is the price of the stock given a 12% expected return?

$75

Our company forecasts to pay a $10 dividend next year, which represents 100% of its earnings. This will provide investors with a 12% expected return. Instead, we decide to plowback 50% of the earnings at the firm's current return on equity of 20%. What is the value of the stock before and after the plowback decision?

$83.33 and $250

A will provide a dividend of $10 forever B will pay a dividend of $5 next year. Thereafter, dividend growth will be 4% a year forever. If market capitalization rate for each stock is 10%, which stock is the most valuable?

100 and 83.33, so A

Phoenix produces dividends in three consecutive years of 0, .40, and .70, respectively. The dividend in year four is estimated to be .75 and should grow in perpetuity at 5%. Given a discount rate of 10%, what is the price of the stock?

12.13

Northwest Natural Gas stock was selling for $48 per share at the start of 2015. Dividend payments for the next year were expected to be $2.00 a share. What is the expected return on equity, assuming a growth rate of 8%?

12.18%

Company Y does not plow back any earnings and is expected to produce a level dividend stream of $5 a share. If the current stock price is $40, what is the market capitalization rate?

12.5%

Company Z's earnings and dividends per share will grow indefinitely by 5% a year. If next year's dividend is $10 and the market capitalization rate is 8%, what is the current stock price? If Company Z were to distribute all its earnings, it could maintain a level dividend stream of $15 a share. How much is the market actually paying per share for growth opportunities?

145.83

Company Z's earnings and dividends per share will grow indefinitely by 5% a year. If next year's dividend is $10 and the market capitalization rate is 8%, what is the current stock price?

333.33

Northwest Natural Gas stock was selling for $48 per share at the start of 2015. Dividend payments for the next year were expected to be $2.00 a share. What is the dividend yield, assuming no growth?

4.17%