Question 1

The following stocks are examples of growth stocks except:

Accepted Answer

A)  Scottish Power 
B)  e2v Technologies 
C)  Microsoft 
D)  Starbucks 
A)  Scottish Power 
B)  e2v Technologies 
C)  Microsoft 
D)  Starbucks A

Question 2

The exchange-traded fund (EFT) that tracks the Nasdaq 100 index is called:

Accepted Answer

A)  SPDR 
B)  DIAMONDS 
C)  QQQQ 
D)  None of the above 
A)  SPDR 
B)  DIAMONDS 
C)  QQQQ 
D)  None of the above C

Question 3

The In-Tech Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 25% per year for the next three years and at the rate of 5% per year thereafter. If the required rate of return on the stock is 18%(APR), what is the current value of the stock?

Accepted Answer

A)  $12.97 
B)  $11.93 
C)  $15.20 
D)  None of the above 
A)  $12.97 
B)  $11.93 
C)  $15.20 
D)  None of the above A

Question 4

Parcel Corporation is expected to pay a dividend of $5 per share next year, and the dividends pay out ratio is 50%. If the dividends are expected to grow at a constant rate of 8% forever and the required rate of return on the stock is 13%, calculate the present value of the growth opportunity.

Accepted Answer

A)  $100 
B)  $76.92 
C)  $23.08 
D)  None of the above 
A)  $100 
B)  $76.92 
C)  $23.08 
D)  None of the above

Question 5

Discuss the term "price-earnings (P/E) ratio."

Accepted Answer

The P/E ratio is a widely used financial

Question 6

The following stocks are examples of income stocks except:

Accepted Answer

A)  Cummins, Inc. 
B)  Dow Chemicals 
C)  Starbucks 
D)  All of the above are income stocks 
A)  Cummins, Inc. 
B)  Dow Chemicals 
C)  Starbucks 
D)  All of the above are income stocks

Question 7

The discounted-cash-flow formulas that is used to value common stocks can also be used to value entire businesses.

Accepted Answer

A) True 
 B)False

Question 8

River Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25 and is currently selling for $40 per share, calculate the required rate of return on the stock.

Accepted Answer

A)  15.2% 
B)  7.2% 
C)  14.7% 
D)  13.4% 
A)  15.2% 
B)  7.2% 
C)  14.7% 
D)  13.4%

Question 9

Which of the following formulas regarding earnings to price ratio is true:

Accepted Answer

A)  EPS/Po = r[1 + (PVGO/Po] 
B)  EPS/Po = r[1 - (PVGO/Po)] 
C)  EPS/Po = [r + (PVGO/Po)] 
D)  EPS/Po = [r + (1 + (PVGO/Po)]/r 
A)  EPS/Po = r[1 + (PVGO/Po] 
B)  EPS/Po = r[1 - (PVGO/Po)] 
C)  EPS/Po = [r + (PVGO/Po)] 
D)  EPS/Po = [r + (1 + (PVGO/Po)]/r

Question 10

Most of the trading on the NYSE is in ordinary common stocks.

Accepted Answer

A) True 
 B)False

Question 11

Assume General Electric (GE) has about 10.3 billion shares outstanding and the stock price is $37.10. Also assume the P/E ratio is about 18.3. Calculate the market capitalization for GE. (Approximately)

Accepted Answer

A)  $679 billion 
B)  $188 billion 
C)  $382 billion 
D)  None of the above 
A)  $679 billion 
B)  $188 billion 
C)  $382 billion 
D)  None of the above

Question 12

The cost of equity equals the dividend yield minus the growth rate in dividends for a constant dividend growth stock.

Accepted Answer

A) True 
 B)False

Question 13

Generally high growth stocks pay:

Accepted Answer

A)  Low or no dividends 
B)  High dividends 
C)  Erratic dividends 
D)  Both A and C 
A)  Low or no dividends 
B)  High dividends 
C)  Erratic dividends 
D)  Both A and C

Question 14

Universal Air 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.

Accepted Answer

A)  $200 
B)  $150 
C)  $100 
D)  $50 
A)  $200 
B)  $150 
C)  $100 
D)  $50

Question 15

Super Computer Company's stock is selling for $100 per share today. It is expected that this stock will pay a dividend of 6 dollars per share, and then be sold for $114 per share at the end of one year. Calculate the expected rate of return for the shareholders.

Accepted Answer

A)  20% 
B)  15% 
C)  10% 
D)  25% 
A)  20% 
B)  15% 
C)  10% 
D)  25%

Question 16

Briefly explain the assumptions associated with the constant dividend growth formula.

Accepted Answer

There are two important assumptions that

Question 17

A high proportion of the value of a growth stock comes from:

Accepted Answer

A)  Past dividend payments 
B)  Past earnings 
C)  PVGO (Present Value of the Growth Opportunities) 
D)  Both A and B 
A)  Past dividend payments 
B)  Past earnings 
C)  PVGO (Present Value of the Growth Opportunities) 
D)  Both A and B

Question 18

Seven-Seas Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40 and the market price is 52.50 per share, calculate the required rate of return on the stock.

Accepted Answer

A)  12% 
B)  11% 
C)  5% 
D)  6% 
A)  12% 
B)  11% 
C)  5% 
D)  6%

Question 19

Everyone regards Microsoft as an income stock and Cummins as a growth stock.

Accepted Answer

A) True 
 B)False

Question 20

CK Company stockholders expect to receive a year-end dividend of $5 per share and then be sold for $115 dollars per share. If the required rate of return for the stock is 20%, what is the current value of the stock?

Accepted Answer

A)  $100 
B)  $122 
C)  $132 
D)  $110 
A)  $100 
B)  $122 
C)  $132 
D)  $110

Exam 4: The Value of Common Stocks

The following stocks are examples of growth stocks except:

The exchange-traded fund (EFT) that tracks the Nasdaq 100 index is called:

The In-Tech Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 25% per year for the next three years and at the rate of 5% per year thereafter. If the required rate of return on the stock is 18%(APR), what is the current value of the stock?

Parcel Corporation is expected to pay a dividend of $5 per share next year, and the dividends pay out ratio is 50%. If the dividends are expected to grow at a constant rate of 8% forever and the required rate of return on the stock is 13%, calculate the present value of the growth opportunity.

Discuss the term "price-earnings (P/E) ratio."

The following stocks are examples of income stocks except:

The discounted-cash-flow formulas that is used to value common stocks can also be used to value entire businesses.

River Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25 and is currently selling for $40 per share, calculate the required rate of return on the stock.

Which of the following formulas regarding earnings to price ratio is true:

Most of the trading on the NYSE is in ordinary common stocks.

Assume General Electric (GE) has about 10.3 billion shares outstanding and the stock price is $37.10. Also assume the P/E ratio is about 18.3. Calculate the market capitalization for GE. (Approximately)

The cost of equity equals the dividend yield minus the growth rate in dividends for a constant dividend growth stock.

Generally high growth stocks pay:

Universal Air 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.

Super Computer Company's stock is selling for $100 per share today. It is expected that this stock will pay a dividend of 6 dollars per share, and then be sold for $114 per share at the end of one year. Calculate the expected rate of return for the shareholders.

Briefly explain the assumptions associated with the constant dividend growth formula.

A high proportion of the value of a growth stock comes from:

Seven-Seas Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40 and the market price is 52.50 per share, calculate the required rate of return on the stock.

Everyone regards Microsoft as an income stock and Cummins as a growth stock.

CK Company stockholders expect to receive a year-end dividend of $5 per share and then be sold for $115 dollars per share. If the required rate of return for the stock is 20%, what is the current value of the stock?

Goals and Governance of the Firm

How to Calculate Present Values

Valuing Bonds

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

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