Question 1

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Accepted Answer

A) True 
 B)False

Question 2

If a stock's dividend is expected to grow at a constant rate of 5% a year,which of the following statements is CORRECT? The stock is in equilibrium.

Accepted Answer

A)   The stock's dividend yield is 5%.
B)   The price of the stock is expected to decline in the future.
C)   The stock's required return must be equal to or less than 5%.
D)   The stock's price one year from now is expected to be 5% above the current price.
E)   The expected return on the stock is 5% a year.F) B) and D)
G) A) and E)

Question 3

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter,and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Accepted Answer

A)   6.62%
B)   6.82%
C)   7.03%
D)   7.25%
E)   7.47%F) A) and C)
G) A) and B)

Question 4

National Advertising just paid a dividend of D0 = $0.75 per share,and that dividend is expected to grow at a constant rate of 6.50% per year in the future.The company's beta is 1.25,the required return on the market is 10.50%,and the risk-free rate is 4.50%.What is the company's current stock price?

Accepted Answer

A)   $14.52
B)   $14.89
C)   $15.26
D)   $15.64
E)   $16.03F) C) and E)
G) A) and B)

Question 5

The required return for Williamson Heating's stock is 12%,and the stock sells for $40 per share.The firm just paid a dividend of $1.00,and the dividend is expected to grow by 30% per year for the next 4 years,so D4 = $1.00(1.30) 4 = $2.8561.After t = 4,the dividend is expected to grow at a constant rate of X% per year forever.What is the stock's expected constant growth rate after t = 4,i.e. ,what is X?

Accepted Answer

A)   5.17%
B)   5.44%
C)   5.72%
D)   6.02%
E)   6.34%F) D) and E)
G) A) and D)

Question 6

Which of the following statements is CORRECT?

Accepted Answer

A)   The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
B)   Corporations cannot buy the preferred stocks of other corporations.
C)   Preferred dividends are not generally cumulative.
D)   A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.
E)   Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income,but not to the proceeds in a liquidation.F) A) and B)
G) A) and C)

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   Preferred stock is normally expected to provide steadier,more reliable income to investors than the same firm's common stock,and,as a result,the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
B)   The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
C)   One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient,whereas interest income earned on bonds would be tax free.
D)   One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
E)   A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.F) A) and C)
G) A) and E)

Question 8

Hirshfeld Corporation's stock has a required rate of return of 10.25%,and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D1?

Accepted Answer

A)   $2.20
B)   $2.44
C)   $2.69
D)   $2.96
E)   $3.25F) All of the above
G) A) and E)

Question 9

Reynolds Construction's value of operations is $750 million based on the free cash flow valuation model.Its balance sheet shows $50 million of short-term investments that are unrelated to operations,$100 million of accounts payable,$100 million of notes payable,$200 million of long-term debt,$40 million of common stock (par plus paid-in-capital) ,and $160 million of retained earnings.What is the best estimate for the firm's value of equity,in millions?

Accepted Answer

A)   $429
B)   $451
C)   $475
D)   $500
E)   $525F) B) and D)
G) None of the above

Question 10

Which of the following statements is CORRECT?

Accepted Answer

A)   If a company has a WACC = 12% and its free cash flow is expected to grow at a constant rate of 5%,this implies that the stock's dividend yield is also 5%.
B)   The free cash flow valuation model for constant growth,Vop = FCF1/(WACC − g) ,can be used to value firms whose free cash flows are expected to decline at a constant rate,i.e. ,to grow at a negative rate.
C)   The value of operations of a stock is the present value of all expected future free cash flows,discounted at the free cash flow growth rate.
D)   The constant growth model cannot be used for a zero growth stock,where free cash flows are expected to remain constant over time.
E)   The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.F) None of the above
G) A) and C)

Question 11

Which of the following statements is CORRECT?

Accepted Answer

A)   If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%,this implies that the stock's dividend yield is also 5%.
B)   The stock valuation model,P0 = D1/(rs − g) ,can be used to value firms whose dividends are expected to decline at a constant rate,i.e. ,to grow at a negative rate.
C)   The price of a stock is the present value of all expected future dividends,discounted at the dividend growth rate.
D)   The constant growth model cannot be used for a zero growth stock,where the dividend is expected to remain constant over time.
E)   The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.F) D) and E)
G) B) and E)

Question 12

Connolly Co.'s expected year-end dividend is D1 = $1.60,its required return is rs = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e. ,what is 1 = $1.60,its required return is rs = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e. ,what is   ? A)  $37.52 B)  $39.40 C)  $41.37 D)  $43.44 E)  $45.61" class="answers-bank-image d-inline" rel="preload" >
?

Accepted Answer

A)   $37.52
B)   $39.40
C)   $41.37
D)   $43.44
E)   $45.61F) All of the above
G) A) and C)

Question 13

$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,rs,is 9.00%.What is the stock's expected price 3 years from today?

Accepted Answer

A)   $37.86
B)   $38.83
C)   $39.83
D)   $40.85
E)   $41.69F) D) and E)
G) B) and E)

Question 14

Kellner Motor Co.'s stock has a required rate of return of 11.50%,and it sells for $25.00 per share.Kellner's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D0?

Accepted Answer

A)   $0.95
B)   $1.05
C)   $1.16
D)   $1.27
E)   $1.40F) B) and E)
G) C) and D)

Question 15

If a firm's expected growth rate increased then its required rate of return would

Accepted Answer

A)   decrease.
B)   fluctuate less than before.
C)   fluctuate more than before.
D)   possibly increase,possibly decrease,or possibly remain constant.
E)   increase.F) A) and C)
G) C) and D)

Question 16

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   The free cash flow valuation model discounts free cash flows by the required return on equity.
B)   The free cash flow valuation model can be used to find the value of a division.
C)   An important step in applying the free cash flow valuation model is forecasting the firm's pro forma financial statements.
D)   Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon,or terminal,value.
E)   The free cash flow valuation model can be used both for companies that pay dividends and those that do not pay dividends.F) C) and E)
G) A) and E)

Question 17

Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.If the required return on this preferred stock is 6.5%,at what price should the preferred stock sell?

Accepted Answer

A)   $104.27
B)   $106.95
C)   $109.69
D)   $112.50
E)   $115.38F) A) and C)
G) A) and E)

Question 18

Free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

Accepted Answer

A) True 
 B)False

Question 19

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $44,what is the stock's expected total return for the coming year?

Accepted Answer

A)   7.54%
B)   7.73%
C)   7.93%
D)   8.13%
E)   8.34%F) None of the above
G) A) and B)

Question 20

If D1 = $1.25,g (which is constant) = 4.7%,and P0 = $26.00,what is the stock's expected dividend yield for the coming year?

Accepted Answer

A)   4.12%
B)   4.34%
C)   4.57%
D)   4.81%
E)   5.05%F) B) and C)
G) A) and D)

Exam 7: Corporate Valuation and Stock Valuation

Kellner Motor Co.'s stock has a required rate of return of 11.50%,and it sells for $25.00 per share.Kellner's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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Hirshfeld Corporation's stock has a required rate of return of 10.25%,and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D₁?

Correct Answer
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Connolly Co.'s expected year-end dividend is D₁ = $1.60,its required return is r_s = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e. ,what is ?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $44,what is the stock's expected total return for the coming year?

Correct Answer
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If a firm's expected growth rate increased then its required rate of return would

Correct Answer
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Correct Answer
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Correct Answer
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Free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

Correct Answer
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Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.If the required return on this preferred stock is 6.5%,at what price should the preferred stock sell?

Correct Answer
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If D₁ = $1.25,g (which is constant) = 4.7%,and P₀ = $26.00,what is the stock's expected dividend yield for the coming year?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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If a stock's dividend is expected to grow at a constant rate of 5% a year,which of the following statements is CORRECT? The stock is in equilibrium.

Correct Answer
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Correct Answer
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A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Correct Answer
verified

$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?

Correct Answer
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Connor Publishing's preferred stock pays a dividend of $1.00 per quarter,and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Correct Answer
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Exam 7: Corporate Valuation and Stock Valuation

Kellner Motor Co.'s stock has a required rate of return of 11.50%,and it sells for $25.00 per share.Kellner's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D0?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedShow Answer

Hirshfeld Corporation's stock has a required rate of return of 10.25%,and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D1?

Correct AnswerverifiedShow Answer

Connolly Co.'s expected year-end dividend is D1 = $1.60,its required return is rs = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e. ,what is ?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $44,what is the stock's expected total return for the coming year?

Correct AnswerverifiedShow Answer

If a firm's expected growth rate increased then its required rate of return would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

Correct AnswerverifiedShow Answer

Carby Hardware has an outstanding issue of perpetual preferred stock with an annual dividend of $7.50 per share.If the required return on this preferred stock is 6.5%,at what price should the preferred stock sell?

Correct AnswerverifiedShow Answer

If D1 = $1.25,g (which is constant) = 4.7%,and P0 = $26.00,what is the stock's expected dividend yield for the coming year?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If a stock's dividend is expected to grow at a constant rate of 5% a year,which of the following statements is CORRECT? The stock is in equilibrium.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Correct AnswerverifiedShow Answer

$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,rs,is 9.00%.What is the stock's expected price 3 years from today?

Correct AnswerverifiedShow Answer

Connor Publishing's preferred stock pays a dividend of $1.00 per quarter,and it sells for $55.00 per share.What is its effective annual (not nominal) rate of return?

Correct AnswerverifiedShow Answer

Kellner Motor Co.'s stock has a required rate of return of 11.50%,and it sells for $25.00 per share.Kellner's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

Correct Answer
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Correct Answer
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Hirshfeld Corporation's stock has a required rate of return of 10.25%,and it sells for $57.50 per share.The dividend is expected to grow at a constant rate of 6.00% per year.What is the expected year-end dividend,D₁?

Correct Answer
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Connolly Co.'s expected year-end dividend is D₁ = $1.60,its required return is r_s = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Connolly's expected stock price in 7 years,i.e. ,what is ?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $44,what is the stock's expected total return for the coming year?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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If D₁ = $1.25,g (which is constant) = 4.7%,and P₀ = $26.00,what is the stock's expected dividend yield for the coming year?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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$35.50 per share is the current price for Foster Farms' stock.The dividend is projected to increase at a constant rate of 5.50% per year.The required rate of return on the stock,r_s,is 9.00%.What is the stock's expected price 3 years from today?

Correct Answer
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Correct Answer
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