Site MapHelpFeedbackMultiple Choice Quiz
Multiple Choice Quiz
(See related pages)

1
Sam's Company expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two and then be sold for $136 per share. If the required rate on the stock is 20%, what is the current value of the stock?
A)$100.10
B)$105.69
C)$110.00
D)$120.29
2
The constant dividend growth formula P0 = DIV1/(r-g) assumes:
A)The dividends are growing rate at a constant rate g forever.
B)r > g
C)g is never negative.
D)Both A and B
3
Dividend growth rate for a stable firm can be estimated as:
A)Plow back rate * the return on equity (ROE)
B)Plow back rate / the return on equity (ROE)
C)Plow back rate + the return on equity (ROE)
D)Plow back rate − the return on equity (ROE)
4
Franks Co. is currently paying a dividend of $2.20 per share (DIV0). The dividends are expected to grow at 25% per year for the next four years and then grow 5% per year thereafter. Calculate the expected dividend in year 6.
A)$5.37
B)$2.95
C)$5.92
D)$8.39
5
The value of the stock:
A)Increases as the dividend growth rate increases
B)Increases as the required rate of return decreases
C)Increases as the required rate of return increases
D)Both A and B
6
Companies with higher expected growth opportunities usually sell for:
A)Lower P/E ratio
B)Higher P/E ratio
C)A price that is independent of P/E ratio
D)A price that the dependent upon the payment ratio
7
A high proportion of the value a growth stock comes from:
A)Past dividend payments
B)Past earnings
C)PVGO (Present Value of the Growth Opportunities)
D)Both A and B
8
FastGrow is a no growth firm and has two million shares outstanding. It is expected to earn a constant $20 million per year on its assets. If all earnings are paid out as dividends and the cost of capital is 10%, calculate the current price per share for the stock.
A)$200
B)$100
C)$150
D)$50
9
Knight Inc. is expected to pay a $1.80 dividend next year. The dividend in year 2 is expected to be $2.10. The dividend in year 3 is expected to be $2.50. After that, the dividend is expected to grow at a constant rate of 2%. The cost of capital is 10%. What is Knight's stock price?
A)$27.02
B)$29.20
C)$31.88
D)$32.12
10
K&K Corp. just paid a dividend of $2.00 (DIV0). It is expected to grow at 5% for three years. Then, it will grow at a constant rate of 2%. If the cost of capital is 8%, what is the current stock price?
A)$31.88
B)$34.60
C)$36.92
D)$39.36
11
Smokes Inc. just paid a dividend of $3.00 (DIV0). Because of decreasing demand, the dividend is expected to decrease at a constant rate of 4%. The cost of capital is 11%. What is the stock price?
A)$0.00
B)$19.20
C)$20.00
D)$44.57
12
You are planning to buy a share of stock. You expect next year's dividend to be $1.25 (DIV1). You plan to sell the stock at the end of year 2 for $42.50 (after receiving the year 2 dividend of $1.50). What is the maximum price you would be willing to pay for this investment if your required rate of return is 12%?
A)$30.00
B)$32.56
C)$36.19
D)$42.50
13
Given a stock price of $39.77 and an expected return to shareholders of 12.4%, what is the likely growth rate if the annual dividend next year is expected to be $3.50?
A)0.0%
B)3.6%
C)8.4%
D)12.4%
14
A stock is trading for $35.00 and the firm has no growth potential. An analysis reveals that the price from a new growth oriented investment would be $55.00. What is the PVGO of this new project?
A)$0.00
B)$20.00
C)$35.00
D)$55.00
15
Spring Co. is expected to pay a dividend or $4.00 per share out of earnings of $7.50 per share. If the required rate of return on the stock is 15% and dividends are growing at a current rate of 8% per year, calculate the present value of the growth opportunity for the stock (PVGO)?
A)$57.17
B)$50.00
C)$26.66
D)$7.14





To learn more about the book this website supports, please visit its Information Center.
(c)2011 McGraw-Hill Higher Education
Any use is subject to the Terms of Use and Privacy Notice.
McGraw-Hill Higher Education is one of the many fine businesses of The McGraw-Hill Companies.


Principles of Corporate Finan Online Learning Center

Home > Chapter 4 > Multiple Choice Quiz