Exam 8: Net Present Value and Other Investment Criteria

Hightower Pharmacy just paid a $3.10 annual dividend.The company has a policy of increasing the dividend by 4.2 percent annually.You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another four years.If you require a 16 percent rate of return, how much will you be willing to pay per share for the 100 shares when you can afford to make this investment?

The common stock of Textile Mills pays an annual dividend of $1.65 a share.The company has promised to maintain a constant dividend even though economic times are tough.How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?

Hardwoods, Inc.is a mature manufacturing firm.The company just paid a $10 dividend, but management expects to reduce the payout by 9 percent each year, indefinitely.How much are you willing to pay today per share to buy this stock if you require a 15 percent rate of return?

Diets For You announced today that it will begin paying annual dividends next year.The first dividend will be $0.12 a share.The following dividends will be $0.15, $0.20, $0.50, and $0.75 a share annually for the following 4 years, respectively.After that, dividends are projected to increase by 4 percent per year.How much are you willing to pay to buy one share of this stock today if your desired rate of return is 8.5 percent?

Upper Crust Bakers just paid an annual dividend of $3.10 a share and is expected to increase that amount by 4 percent per year.If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 12 percent at the time of your purchase?

The secondary market is best defined by which one of the following?

You own 600 shares of a NASDAQ listed stock that you wish to sell.Which of the following are options available to you for this purpose? I.sell the shares to a dealer at the dealer's bid price II.sell directly to another individual via an ECN III.offer the shares yourself on NASDAQ via an ECN IV.have a broker offer the shares for sale on the NYSE

Bonnie's Ice Cream is expecting its ice cream sales to decline due to the increased interest in healthy eating.Thus, the company has announced that it will be reducing its annual dividend by 2 percent a year for the next five years.After that, it will maintain a constant dividend of $2 a share.Last year, the company paid $2.35 per share.What is this stock worth to you if you require a 9.5 percent rate of return?

Bechtel Machinery stock currently sells for $65 per share.The market requires a 14 percent return on the firm's stock.The company maintains a constant 8 percent growth rate in dividends.What was the most recent annual dividend per share paid on this stock?

Home Canning Products common stock sells for $41.00 a share and has a market rate of return of 12.8 percent.The company just paid an annual dividend of $1.15 per share.What is the dividend growth rate?

Zylo, Inc.preferred stock pays a $7.50 annual dividend.What is the maximum price you are willing to pay for one share of this stock today if your required return is 7.5 percent?

An increase in which of the following will increase the current value of a stock according to the dividend growth model? I.dividend amount II.number of future dividends, provided the current number is less than infinite III.discount rate IV.dividend growth rate

Miller Brothers Hardware paid an annual dividend of $0.95 per share last month.Today, the company announced that future dividends will be increasing by 2.6 percent annually.If you require a 13 percent rate of return, how much are you willing to pay to purchase one share of this stock today?

The preferred stock of Rail Lines, Inc., pays an annual dividend of $12.25 and sells for $59.70 a share.What is the rate of return on this security?

You are an accountant and have been analyzing the financial statements of Euro Place Markets, which is a foreign retailer.While the firm's financials are not prepared according to GAAP, you have still been able to understand the firm's accounting practices and feel that this firm has a bright future.On which one of the following U.S.markets, if any, might you be able to purchase shares in this firm?

Sweatshirts Unlimited is downsizing.The company paid a $2.80 annual dividend last year.The company has announced plans to lower the dividend by 25 percent each year.Once the dividend amount becomes zero, the company will cease all dividends and go out of business.You have a required rate of return of 18 percent on this particular stock given the company's situation.What are your shares in this firm worth today on a per share basis?

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

What are the distributions to shareholders by a corporation called?

Marshall Arts Studios just paid an annual dividend of $1.36 a share.The firm plans to pay annual dividends of $1.50, $1.55, and $1.58 over the next 3 years, respectively.After that time, the dividends will be held constant at $1.70 per share.What is this stock worth today at a 9 percent discount rate?

Shares of Hot Donuts common stock are currently selling for $32.35.The last annual dividend paid was $1.25 per share and the market rate of return is 10.7 percent.At what rate is the dividend growing?