Ch 8 Quiz

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 Explanation $58.49 = [D0(1.013)]/(.126 − .013) D0 = $6.52

Electric Utilities preferred stock will pay an annual dividend of $12 per share in perpetuity beginning 8 years from now. What is one share of this stock worth today if the market requires a return of 9.5 percent?

$66.92 Explanation P7 = $12/.095 P7 = $126.32P0 = $126.32/1.095^7 P0 = $66.92

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?

$15.64 Explanation P7 = $1.58(1.0278)/(.152 − .027) P7 = $15.64

Hover Software currently has an EPS of $2.31, a benchmark PE of 13.5, and an earnings growth rate of 2.3 percent. What is the target share price 4 years from now?

$34.15 Explanation P4 = $2.31(1.023^4)(13.5) P4 = $34.15

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?

$5.34 Explanation D = .0840($63.60) D = $5.34

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?

12.46% Explanation Dividend yield = .1456 − .021 Dividend yield = .1246, or 12.46%

The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares 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 percent plus one vote

Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers?

Pillar system

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?

Primary

You want to be on the board of directors of Uptown Communications. Since you are the only shareholder who will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected?

Straight