Question 1

Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company.

Accepted Answer

A)  $6 per share 
B)  $10 per share 
C)  $0.20 per share 
D)  $5 per share 
A)  $6 per share 
B)  $10 per share 
C)  $0.20 per share 
D)  $5 per share

Question 2

Ocean Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)?

Accepted Answer

A)  16% 
B)  12% 
C)  8% 
D)  4% 
A)  16% 
B)  12% 
C)  8% 
D)  4%

Question 3

The return that is expected by investors from a common stock is also called its market capitalization rate or cost of equity capital.

Accepted Answer

A) True 
 B)False

Question 4

R&D Technology Corporation has just paid a dividend of $0.50 per share. The dividends are expected to grow at 24% per year for the next two years and at 8% per year thereafter. If the required rate of return in the stock is 16% (APR), calculate the current value of the stock.

Accepted Answer

A)  $1.11 
B)  $7.71 
C)  $8.82 
D)  None of the above 
A)  $1.11 
B)  $7.71 
C)  $8.82 
D)  None of the above

Question 5

Deluxe Company expects to pay a dividend of $2 per share at the end of year-1, $3 per share at the end of year-2 and then be sold for $32 per share. If the required rate on the stock is 15%, what is the current value of the stock?

Accepted Answer

A)  $28.20 
B)  $32.17 
C)  $32.00 
D)  None of the given answers 
A)  $28.20 
B)  $32.17 
C)  $32.00 
D)  None of the given answers

Question 6

The following are auction markets except:

Accepted Answer

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

Question 7

It is more likely than not that a high tech growth company which reports record earnings and announces its first ever dividend will have the stock price of the firm drop.

Accepted Answer

A) True 
 B)False

Question 8

MJ Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate for the firm?

Accepted Answer

A)  9% 
B)  5% 
C)  6% 
D)  15% 
A)  9% 
B)  5% 
C)  6% 
D)  15%

Question 9

The value of a common stock today depends on:

Accepted Answer

A)  Number of shares outstanding and the number of shareholders 
B)  The expected future dividends and the discount rate 
C)  The Wall Street analysts 
D)  Present value of the future earnings per share 
A)  Number of shares outstanding and the number of shareholders 
B)  The expected future dividends and the discount rate 
C)  The Wall Street analysts 
D)  Present value of the future earnings per share

Question 10

Which of the following stocks is (are) an income stock(s)?

Accepted Answer

A)  Dow Chemicals 
B)  Starbucks 
C)  Microsoft 
D)  None of the above 
A)  Dow Chemicals 
B)  Starbucks 
C)  Microsoft 
D)  None of the above

Question 11

Explain the term "primary market."

Accepted Answer

When new shares of common stocks are sol

Question 12

The following is an example of a dealer market:

Accepted Answer

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

Question 13

A large percentage of the total value of a growth stock comes from the growth opportunity.

Accepted Answer

A) True 
 B)False

Question 14

The major secondary market for GE shares is:

Accepted Answer

A)  London Stock Exchange 
B)  New York Stock Exchange 
C)  Nasdaq 
D)  none of the above 
A)  London Stock Exchange 
B)  New York Stock Exchange 
C)  Nasdaq 
D)  none of the above

Question 15

Briefly explain the major types of exchanges prevalent in the USA.

Accepted Answer

There are two types of exchanges that ar

Question 16

Otobai Motor Company is currently paying a dividend of $1.40 per year. The dividends are expected to grow at a rate of 18% for the next three years and then a constant rate of 5% thereafter. What is the expected dividend per share in year 5?

Accepted Answer

A)  $2.35 
B)  $2.54 
C)  $2.91 
D)  $1.50 
A)  $2.35 
B)  $2.54 
C)  $2.91 
D)  $1.50

Question 17

The expected rate of return or the cost of equity capital is estimated as follows:

Accepted Answer

A)  Dividend yield - expected rate of growth in dividends 
B)  Dividend yield + expected rate of growth in dividends 
C)  Dividend yield/expected rate of growth in dividends 
D)  (Dividend yield) * (expected rate of growth in dividends) 
A)  Dividend yield - expected rate of growth in dividends 
B)  Dividend yield + expected rate of growth in dividends 
C)  Dividend yield/expected rate of growth in dividends 
D)  (Dividend yield) * (expected rate of growth in dividends)

Question 18

Briefly explain why Microsoft experienced a significant drop in price when it announced its first ever regular dividend along with huge profits.

Accepted Answer

Under the concept of PVGO, Microsoft was

Question 19

Lake Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40, what is the expected growth rate in dividends?

Accepted Answer

A)  7.5% 
B)  8% 
C)  12.5% 
D)  5% 
A)  7.5% 
B)  8% 
C)  12.5% 
D)  5%

Question 20

Casino Inc. is expected to pay a dividend of $3 per share at the end of year-1 (D1) and these dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 18%, what is current value of the stock today?

Accepted Answer

A)  $25 
B)  $50 
C)  $100 
D)  $54 
A)  $25 
B)  $50 
C)  $100 
D)  $54

Exam 4: The Value of Common Stocks

Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company.

Ocean Co. has paid a dividend $2 per share out of earnings of $4 per share. If the book value per share is $25, what is the expected growth rate in dividends (g)?

The return that is expected by investors from a common stock is also called its market capitalization rate or cost of equity capital.

R&D Technology Corporation has just paid a dividend of $0.50 per share. The dividends are expected to grow at 24% per year for the next two years and at 8% per year thereafter. If the required rate of return in the stock is 16% (APR), calculate the current value of the stock.

Deluxe Company expects to pay a dividend of $2 per share at the end of year-1, $3 per share at the end of year-2 and then be sold for $32 per share. If the required rate on the stock is 15%, what is the current value of the stock?

The following are auction markets except:

It is more likely than not that a high tech growth company which reports record earnings and announces its first ever dividend will have the stock price of the firm drop.

MJ Co. pays out 60% of its earnings as dividends. Its return on equity is 15%. What is the stable dividend growth rate for the firm?

The value of a common stock today depends on:

Which of the following stocks is (are) an income stock(s)?

Explain the term "primary market."

The following is an example of a dealer market:

A large percentage of the total value of a growth stock comes from the growth opportunity.

The major secondary market for GE shares is:

Briefly explain the major types of exchanges prevalent in the USA.

Otobai Motor Company is currently paying a dividend of $1.40 per year. The dividends are expected to grow at a rate of 18% for the next three years and then a constant rate of 5% thereafter. What is the expected dividend per share in year 5?

The expected rate of return or the cost of equity capital is estimated as follows:

Briefly explain why Microsoft experienced a significant drop in price when it announced its first ever regular dividend along with huge profits.

Lake Co. has paid a dividend $3 per share out of earnings of $5 per share. If the book value per share is $40, what is the expected growth rate in dividends?

Casino Inc. is expected to pay a dividend of $3 per share at the end of year-1 (D1) and these dividends are expected to grow at a constant rate of 6% per year forever. If the required rate of return on the stock is 18%, what is current value of the stock today?

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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