FIN 338 CH 8, 12, 13

Miller Brothers Hardware paid an annual dividend of $1.15 per share last month. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 12 percent rate of return, how much are you willing to pay to purchase one share of this stock today?

$12.55

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 increase in which of the following will increase the current value of a stock according to the dividend growth model? I. dividend amount II. number of future dividends, provided the current number is less than infinite III. discount rate IV. dividend growth rate

I, II, and IV only

The dividend 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.

You are an accountant and have been analyzing the financial statements of Euro Place Markets, which is a foreign retailer. While the firm's financials are not prepared according to GAAP, you have still been able to understand the firm's accounting practices and feel that this firm has a bright future. On which one of the following U.S. markets, if any, might you be able to purchase shares in this firm?

Pink Sheets

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 one of the following statements is correct?

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

crossover rate

The cost of capital at which the NPV profiles for two projects intersect. One project has a higher NPV below the crossover rate but the other project has a higher NPV above the crossover rate.

Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true?

The stock has a negative capital gains yield.

some projects have cash flows with signs that change more than once.

This is a nonnormal cash flow pattern.

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.

High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5 percent each year. Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3 percent annually. Given this information, you know for certain that the stock of High Country Builders' has a higher ______ than the stock of Valley High Builders.

capital gains yield

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

capital gains yield

A company has two open seats, Seat A and Seat B, on its board of directors. There are 6 candidates vying for these 2 positions. There will be a single election to determine the winner of both open seats. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 200 of your votes for a single candidate. What is this type of voting called?

cumulative

If projects are mutually exclusive, managers should choose the project that provides the greatest increase in wealth (as measured by the NPV),

even though it may not have the highest rate of return (as measured by the IRR).

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

g

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

market where outstanding shares of stock are resold

Which one of the following is a type of equity security that has a fixed dividend and a priority status over other equity securities?

preferred stock

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

priced the same as a $1 perpetuity.

Callander Enterprises stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will occur in which one of the following markets?

primary

You want to be on the board of directors of Wisely Foods. Since you are the only shareholder that 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 under these conditions?

straight

If a project's cash flows have a nonnormal pattern (i.e., the cash flows have more than one sign change),

it is possible for the project to have more than one positive IRR—that is, multiple IRRs.