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Exam 9: Share Valuation

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Question 51

Multiple Choice

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Constant growth: Prior, Inc., is expected to grow at a constant rate of 9 percent. If the company's next dividend is $2.75 and its current price is $37.35, what is the required rate of return on this stock? (Round to the nearest percent.)

A) 13%
B) 16%
C) 20%
D) 21%

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Question 52

Multiple Choice

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Which ONE of the following statements is true about secondary markets in the United States?

A) In terms of total volume of activity and total capitalization of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest.
B) In terms of the number of companies listed and shares traded on a daily basis, NASDAQ is larger than the NYSE.
C) Firms listed on the NASDAQ tend to be, on average, larger in size, and their shares trade more frequently than firms whose securities trade on NYSE.
D) In the United States, most secondary market transactions are done over the counter.

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Question 53

Multiple Choice

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The least efficient of all the different types of secondary markets is the

PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

PV of dividends: Jacobs Suppliers has not paid out any dividend in the last three years. It does not expect to pay dividends in the next two years either as it recovers from an economic slowdown. Three years from now it expects to pay a dividend of $2.50 and then $3.00 in the following two years. What is the present value of the dividends to be received over the next five years if the discount rate is 15 percent?

Constant growth: You are interested in investing in a company that expects to grow steadily at an annual rate of 6 percent for the foreseeable future. The firm paid a dividend of $2.30 last year. If your required rate of return is 10 percent, what is the most you would be willing to pay for this stock? (Round to the nearest dollar.)

Which one of the following statements is NOT true about auction markets?

Which one of the following statements is NOT true about zero-growth stocks?

Whenever the dividend growth rate exceeds the required rate of return, the constant-growth model provides invalid solutions.

In terms of total volume of activity and total capitalization of the firms listed, the NYSE is the largest in the world and NASDAQ is the second largest.

Supernormal growth: Suppose a firm's expected dividends for the next three years are as follows: D₁ = $1.10, D₂ = $1.20, and D₃ = $1.30. After three years, the firm's dividends are expected to grow at 5.00 percent per year. What is should the current price of the firm's stock (P0) be today if investors require a rate of return of 12.00 percent on the stock? (Round off to the nearest $0.01)

Which of the following statements is true?

Which ONE of the following statements is NOT true about preferred stock?