Putuprimawulandari - Universitas Brawijaya



STOCK VALUE

58. Michael’s, Inc. just paid $1.40 to their shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.5 percent. If you require an 8 percent rate of return, how much are you willing to pay to purchase one share of Michael’s stock?

a. $31.11

b. $32.51

c. $40.00

d. $41.80

e. $43.68

STOCK VALUE

59. Angelina’s made two announcements concerning their common stock today. First, the

company announced that their next annual dividend has been set at $2.16 a share.

Secondly, the company announced that all future dividends will increase by 4 percent

annually. What is the maximum amount you should pay to purchase a share of

Angelina’s stock if your goal is to earn a 10 percent rate of return?

a. $21.60

b. $22.46

c. $27.44

d. $34.62

e. $36.00

STOCK VALUE

60. How much are you willing to pay for one share of stock if the company just paid an

$.80 annual dividend, the dividends increase by 4 percent annually and you require an

8 percent rate of return?

a. $19.23

b. $20.00

c. $20.40

d. $20.80

e. $21.63

STOCK VALUE

61. Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are

expected to increase by 5 percent annually. What is one share of this stock worth to

you today if the appropriate discount rate is 14 percent?

a. $7.14

b. $7.50

c. $11.11

d. $11.67

e. $12.25

STOCK VALUE

62. Majestic Homes stock traditionally provides an 8 percent rate of return. The company

just paid a $2 a year dividend which is expected to increase by 5 percent per year. If

you are planning on buying 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 9 percent

at the time of your purchase?

a. $48.60

b. $52.50

c. $55.13

d. $57.89

e. $70.00

STOCK VALUE

63. Leslie’s Unique Clothing Stores offers a common stock that pays an annual dividend

of $2.00 a share. The company has promised to maintain a constant dividend. How

much are you willing to pay for one share of this stock if you want to earn 12 percent

return on your equity investments?

a. $10.00

b. $13.33

c. $16.67

d. $18.88

e. $20.00

STOCK VALUE

64. Martin’s Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the

past three years, respectively. The company now predicts that it will maintain a

constant dividend since its business has leveled off and sales are expected to remain

relatively constant. Given the lack of future growth, you will only buy this stock if you

can earn at least a 15 percent rate of return. What is the maximum amount you are

willing to pay to buy one share of this stock today?

a. $10.00

b. $13.33

c. $16.67

d. $18.88

e. $20.00

REQUIRED RETURN

65. The common stock of Eddie’s Engines, Inc. sells for $25.71 a share. The stock is

expected to pay $1.80 per share next month when the annual dividend is distributed.

Eddie’s has established a pattern of increasing their dividends by 4 percent annually

and expects to continue doing so. What is the market rate of return on this stock?

a. 7 percent

b. 9 percent

c. 11 percent

d. 13 percent

e. 15 percent

REQUIRED RETURN

66. The current yield on Alpha’s common stock is 4.8 percent. The company just paid a

$2.10 dividend. The rumor is that the dividend will be $2.205 next year. The dividend

growth rate is expected to remain constant at the current level. What is the required

rate of return on Alpha’s stock?

a. 10.04 percent

b. 16.07 percent

c. 21.88 percent

d. 43.75 percent

e. 45.94 percent

REQUIRED RETURN

67. Martha’s Vineyard recently paid a $3.60 annual dividend on their common stock. This

dividend increases at an average rate of 3.5 percent per year. The stock is currently

selling for $62.10 a share. What is the market rate of return?

a. 2.5 percent

b. 3.5 percent

c. 5.5 percent

d. 6.0 percent

e. 9.5 percent

Chapter 08 Quiz A Student Name _________________________ Student ID ____________

________ 1. The Morgan Co. has 750,000 shares of stock outstanding with a market price of $41.84 a share. You currently

own 46,500 shares. The company has three open positions on their board of directors. You want to

assure yourself of winning one of those seats assuming that no one else votes for you. The company uses

cumulative voting. How much more must you invest in the Morgan Co. to assure yourself a seat on the

board?

a. $5,899,482 b. $7,845,042 c. $8,514,482 d. $13,744,482

________ 2. Which one of the following statements is correct concerning equity securities?

a. Preferred shareholders generally receive 10 votes for every share of stock they own.

b. If a dividend payment is missed on a non-cumulative preferred stock, the missed payment must be paid prior to paying any common stock dividends.

c. A 5.5 percent preferred stock pays a quarterly dividend of $5.50.

d. The dividend growth model assumes that the required rate of return exceeds the growth rate.

________ 3. You would like to earn a 9.5 percent rate of return on a 7 percent preferred stock. How much are you willing

to pay per share?

a. $73.68 b. $76.65 c. $101.65 d. $135.71

________ 4. The common stock of Neal’s Metal Works sells for $32.89 a share. The company recently paid their annual

dividend of $1.80 per share and expects to increase this dividend by 2.5 percent annually. What is the rate

of return on this stock?

a. 5.61 percent b. 7.84 percent c. 7.97 percent d. 8.11 percent

________ 5. Mertyle, Inc. recently announced that their annual dividend will be increasing to $2.20 a share for next year

with annual increases in the dividend amount of 1.75 percent thereafter. You require a 14.5 percent rate of return on this relatively risky security. How much are you willing to pay for one share of this stock?

a. $16.48 b. $16.95 c. $17.25 d. $17.56

________6. Carbon Fiber, Inc. is expected to pay annual dividends of $.60, $1.30, $1.80, and $2.00 a share over the next

four years, respectively. After that, the dividend is expected to increase by 2 percent annually. What is one

share of Carbon Fiber stock worth today if similar stocks are yielding a 9 percent return?

a. $20.64 b. $23.39 c. $25.09 d. $27.35

________ 7. The Ol’ Tech Co. last paid a $2.40 annual dividend. The market rate of return on this security is 13 percent

and the market price is $28.70 a share. What is the expected growth rate of Ol’ Tech?

a. 3.56 percent b. 4.28 percent c. 4.48 percent d. 5.07 percent

________ 8. Preferred stockholders are generally granted:

I. the right to demand higher dividend payments if the inflation rate exceeds a pre-specified level.

II. voting rights if their dividends remain unpaid for a period of time.

III. priority over bondholders in a company liquidation.

IV. priority over common stockholders in relation to dividend distributions.

a. I and II only

b. II and III only

c. I and IV only

d. II and IV only

________ 9. Nu-Tek, Inc. recently announced that they will pay their first annual dividend next year in the amount of $.50

a share. The dividend will be increased by 20 percent annually for the following three years, after which time

the increase will be limited to 3 percent annually. How much are you willing to pay for one share of this stock

if you require an 8 percent rate of return?

a. $12.11 b. $14.30 c. $14.89 d. $15.27

________ 10. The common stock of the Zing Co. is selling for $52.40 a share and offers an 8.7 percent rate of return. If the

dividend growth rate is constant at 3 percent, what is the amount of the last annual dividend paid?

a. $2.82 b. $2.86 c. $2.90 d. $2.99

CONSTANT DIVIDEND

75. You have decided that you would like to own some shares of GH Corp. but need an

expected 12 percent rate of return to compensate for the perceived risk of such ownership. What is the maximum you are willing to spend per share to buy GH stock if the company pays a constant $3.50 annual dividend per share?

a. $26.04

b. $29.17

c. $32.67

d. $34.29

e. $36.59

GROWTH DIVIDEND

76. Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of

9.5 percent. The company just paid their annual dividend of $1.20. What is the rate of

growth of their dividend?

a. 5.2 percent

b. 5.5 percent

c. 5.9 percent

d. 6.0 percent

e. 6.3 percent

GROWTH DIVIDEND

77. B&K Enterprises will pay an annual dividend of $2.08 a share on their common stock

next week. Last year, the company paid a dividend of $2.00 a share. The company

adheres to a constant rate of growth dividend policy. What will one share of B&K

common stock be worth ten years from now if the applicable discount rate is 8

percent?

a. $71.16

b. $74.01

c. $76.97

d. $80.05

e. $83.25

PREFERRED STOCK

98. You want to earn a 12 percent rate of return. Panco, Inc. preferred stock pays a $4.50

annual dividend. What is the maximum price you are willing to pay for one share of this stock?

a. $32.50

b. $37.50

c. $39.00

d. $40.50

e. $45.00

NEGATIVE GROWTH

94. The Double Dip Co. is expecting their ice cream sales to decline due to the increased

interest in healthy eating. Thus, the company has announced that they will be reducing

their annual dividend by 5 percent a year for the next two years. After that, they will

maintain a constant dividend of $1 a share. Last year, the company paid $1.40 per

share. What is this stock worth to you if you require a 9 percent rate of return?

a. $10.86

b. $11.11

c. $11.64

d. $12.98

e. $14.23

NONCONSTANT DIVIDENDS

90. BC ‘n D just paid their annual dividend of $.60 a share. The projected dividends for

the next five years are $.30, $.50, $.75, $1.00, and $1.20, respectively. After that time,

the dividends will be held constant at $1.40. What is this stock worth today at a 6

percent discount rate?

a. $20.48

b. $20.60

c. $21.02

d. $21.28

e. $21.43

NONCONSTANT DIVIDENDS

91. Beaksley, Inc. is a very cyclical type of business which is reflected in their dividend

policy. The firm pays a $2.00 a share dividend every other year. The last dividend was

paid last year. Five years from now, the company is repurchasing all of the outstanding

shares at a price of $50 a share. At an 8 percent rate of return, what is this stock worth

today?

a. $34.03

b. $37.21

c. $43.78

d. $48.09

e. $53.18

SUPERNORMAL GROWTH

82. The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The

company is planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next

four years, respectively. After that the dividend will be a constant $2.50 per share per

year. What is the market price of this stock if the market rate of return is 15 percent?

a. $17.04

b. $22.39

c. $26.57

d. $29.08

e. $33.71

SUPERNORMAL GROWTH

83. Can’t Hold Me Back, Inc. is preparing to pay their first dividends. They are

going to pay $1.00, $2.50, and $5.00 a share over the next three years, respectively. After that, the company has stated that the annual dividend will be $1.25 per share indefinitely. What is this stock worth to you per share if you demand a 7 percent rate of return?

a. $7.20

b. $14.48

c. $18.88

d. $21.78

e. $25.06

GROWTH DIVIDEND

79. The Merriweather Co. just announced that they are increasing their annual dividend to

$1.60 and establishing a policy whereby the dividend will increase by 3.5 percent

annually thereafter. How much will one share of this stock be worth five years from

now if the required rate of return is 12 percent?

a. $21.60

b. $22.36

c. $23.14

d. $23.95

e. $24.79

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