Question 1

If the Volume is reported in 100s as 292,059 in the Wall Street Journal quotation, then the trading volume for that day of trading is:

Accepted Answer

A)  292,059 shares 
B)  2,920,590 shares 
C)  29,205,900 shares 
D)  292,059,000 shares 
A)  292,059 shares 
B)  2,920,590 shares 
C)  29,205,900 shares 
D)  292,059,000 shares

Question 2

Explain the term "secondary market."

Accepted Answer

When already issued stocks are

Question 3

The constant growth formula for stock valuation does not work for firms with negative growth (declining) rates in dividends.

Accepted Answer

A) True 
 B)False

Question 4

The Wall Street Journal quotation for a company has the following values: Div: $1.12, PE:
18)3, Close: $37.22. Calculate the dividend pay out ratio for the company (Approximately).

Accepted Answer

A)  18% 
B)  55% 
C)  45% 
D)  None of the above 
A)  18% 
B)  55% 
C)  45% 
D)  None of the above

Question 5

Which of the following stocks is/are a growth stock(s)?

Accepted Answer

A)  Unilever 
B)  Cummins, Inc 
C)  Starbucks 
D)  All of the above are growth stocks 
A)  Unilever 
B)  Cummins, Inc 
C)  Starbucks 
D)  All of the above are growth stocks

Question 6

The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows:

Accepted Answer

A)  (dividends/hi) 
B)  (dividends/lo) 
C)  (dividends/close) 
D)  None of the above 
A)  (dividends/hi) 
B)  (dividends/lo) 
C)  (dividends/close) 
D)  None of the above

Question 7

Discuss the general principle in the valuation of a common stock.

Accepted Answer

The value of a common stock is the prese

Question 8

Briefly explain how the formulas that are used for valuing common stocks can also be used to value businesses.

Accepted Answer

The formulas that are used to value comm

Question 9

In which of the following stock exchange specialists act as the auctioneers:

Accepted Answer

A)  New York Stock Exchange 
B)  London Stock Exchange 
C)  Tokyo Stock Exchange 
D)  Frankfurt Stock Exchange 
A)  New York Stock Exchange 
B)  London Stock Exchange 
C)  Tokyo Stock Exchange 
D)  Frankfurt Stock Exchange

Question 10

All securities in an equivalent risk class are priced to offer the same expected return.

Accepted Answer

A) True 
 B)False

Question 11

The constant dividend growth formula P0 = Div1/(r - g) assumes:
I. the dividends are growing at a constant rate g forever.
II. r > g
III. g is never negative.

Accepted Answer

A)  I only 
B)  II only 
C)  I and II only 
D)  III only 
A)  I only 
B)  II only 
C)  I and II only 
D)  III only

Question 12

It is not possible to value a firm with supernormal (variable) growth rate for the first few years of its life.

Accepted Answer

A) True 
 B)False

Question 13

Briefly explain the term "market capitalization rate."

Accepted Answer

The rate of return expected by the inves

Question 14

A company forecasts growth of 6% for 5 years and 3% thereafter. Given last year's cash flow was $100, what is the horizon value if the company cost of capital is 8%?

Accepted Answer

A)  $0 
B)  $1,672 
C)  $2,000 
D)  $2,676 
A)  $0 
B)  $1,672 
C)  $2,000 
D)  $2,676

Question 15

Will Co. is expected to pay a dividend of $2 per share at the end of year -1(D1) and the dividends are expected to grow at a constant rate of 4% forever. If the current price of the stock is $20 per share calculate the expected return or the cost of equity capital for the firm.

Accepted Answer

A)  10% 
B)  4% 
C)  14% 
D)  None of the above. 
A)  10% 
B)  4% 
C)  14% 
D)  None of the above.

Question 16

The only payoff to the owners of common stocks is in the form cash dividends.

Accepted Answer

A) True 
 B)False

Question 17

A firm forecasts of cash flows ($millions) in years 1 thru 4 to be $120, $130, 135, and
$137, respectively. If the project ends at the end of the fourth year, what is the horizon value given the company has historical growth of 3% and a discount rate of 10%? (answers in
$millions)

Accepted Answer

A)  $0 
B)  $1.37 
C)  $1.96 
D)  $4.87 
A)  $0 
B)  $1.37 
C)  $1.96 
D)  $4.87

Question 18

In which of the following exchanges a computer acts as the auctioneer:
I. New York Stock Exchange, II) London Stock Exchange,
III. Tokyo Stock Exchange
IV. Frankfurt Stock Exchange

Accepted Answer

A)  I, II, III, and IV 
B)  I, III, and IV only 
C)  I, II, and III only 
D)  II, III, and IV only 
A)  I, II, III, and IV 
B)  I, III, and IV only 
C)  I, II, and III only 
D)  II, III, and IV only

Question 19

Summer 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 10% per year, calculate the present value of the growth opportunity for the stock (PVGO).

Accepted Answer

A)  $80 
B)  $30 
C)  $50 
D)  $26 
A)  $80 
B)  $30 
C)  $50 
D)  $26

Question 20

The growth rate in dividends is a function of two ratios. They are:

Accepted Answer

A)  ROA and ROE. 
B)  Dividend yield and growth rate in dividends. 
C)  ROE and the Retention Ratio. 
D)  Book value per share and EPS. 
A)  ROA and ROE. 
B)  Dividend yield and growth rate in dividends. 
C)  ROE and the Retention Ratio. 
D)  Book value per share and EPS.

Exam 4: The Value of Common Stocks

If the Volume is reported in 100s as 292,059 in the Wall Street Journal quotation, then the trading volume for that day of trading is:

Explain the term "secondary market."

The constant growth formula for stock valuation does not work for firms with negative growth (declining) rates in dividends.

The Wall Street Journal quotation for a company has the following values: Div: $1.12, PE: 18)3, Close: $37.22. Calculate the dividend pay out ratio for the company (Approximately).

Which of the following stocks is/are a growth stock(s)?

The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows:

Discuss the general principle in the valuation of a common stock.

Briefly explain how the formulas that are used for valuing common stocks can also be used to value businesses.

In which of the following stock exchange specialists act as the auctioneers:

All securities in an equivalent risk class are priced to offer the same expected return.

The constant dividend growth formula P0 = Div1/(r - g) assumes: I. the dividends are growing at a constant rate g forever. II. r > g III. g is never negative.

It is not possible to value a firm with supernormal (variable) growth rate for the first few years of its life.

Briefly explain the term "market capitalization rate."

A company forecasts growth of 6% for 5 years and 3% thereafter. Given last year's cash flow was $100, what is the horizon value if the company cost of capital is 8%?

Will Co. is expected to pay a dividend of $2 per share at the end of year -1(D1) and the dividends are expected to grow at a constant rate of 4% forever. If the current price of the stock is $20 per share calculate the expected return or the cost of equity capital for the firm.

The only payoff to the owners of common stocks is in the form cash dividends.

A firm forecasts of cash flows ($millions) in years 1 thru 4 to be $120, $130, 135, and $137, respectively. If the project ends at the end of the fourth year, what is the horizon value given the company has historical growth of 3% and a discount rate of 10%? (answers in $millions)

In which of the following exchanges a computer acts as the auctioneer: I. New York Stock Exchange, II) London Stock Exchange, III. Tokyo Stock Exchange IV. Frankfurt Stock Exchange

Summer 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 10% per year, calculate the present value of the growth opportunity for the stock (PVGO).

The growth rate in dividends is a function of two ratios. They are:

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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