Exam 7: Valuing Stocks

What price would you expect to pay for a stock with 13 percent required rate of return, 4 percent rate of dividend growth, and an annual dividend of $2.50 which will be paid tomorrow?

If it proves possible to make abnormal profits based on information regarding past stock prices, then the market:

Holding risk constant, an increase in dividend yield will tend to decrease a firm's rate of growth.

Which of the following describes a seasoned offering?

Security prices are said to follow a "random walk," which means that:

Which of the following is true for a firm having a stock price of $42, and expected dividend of $3, and a sustainable growth rate of 8 percent?

How can you reconcile the fact that whether an investor favours dividends or capital gains, the investor should accept the dividend discount model as a determination of share value?

Which of the following is least likely to account for an excess of market value over book value of equity?

CumChan Corporation reinvests 30 percent of its earnings in the corporation.The stock sells for $25, and the next dividend will be $1.25 per share.The discount rate is 7.5 percent.What is the rate of return on the company's reinvested funds?

For a firm that expects earnings next year of $10.00 per share, has a plowback ratio of 35%, a return on equity of 20%, and a required return of 15%, show the current stock value and next year's expected stock value, assuming that growth is to be constant.

A fundamental analyst:

Market efficiency implies that security prices impound new information quickly.

The expected return on an equity security is comprised of a:

What is the expected, constant growth rate of dividends for a stock with a current price of $100, expected dividend payment of $10 per share, and a required return of 16 percent?

What is the return on equity for a firm that has a constant dividend growth rate of 7 percent and a dividend payout ratio of 60 percent?

What constant growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13 percent?

What is the minimum amount that shareholders should expect to receive in the event of a complete corporate liquidation?

Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for four years, after which it will face more competition and slip into a constant growth rate of 5%.Its required return is 14% and next year's dividend is expected to be $5.00

Explain the relationship between earnings-price ratio, required rate of return, and present value of growth opportunities.

Develop a current stock value for a firm that is expected to have extraordinary growth of 25 percent for four years, after which it will face more competition and slip into a constant growth rate of 5 percent.Its required return is 14 percent and next year's dividend is expected to be $5.00.