Exam 4: The Value of Common Stocks

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 at the end of year 2.If the required rate of return on the stock is 15 percent, what is the current value of the stock?

If a Wall Street Journal quotation for a company has the values Close = 55.14 and Net change = +1.04, then what was the closing price for the stock for the previous trading day?

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

One can estimate the dividend growth rate for a stable firm as

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

One can estimate the expected rate of return or the cost of equity capital as

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

A Wall Street Journal quotation for a company has the following values: Div: $1.12, PE: 18.3, Close: $37.22.Calculate the approximate dividend payout ratio for the company.

Briefly explain the major types of exchanges prevalent in the United States.

The New York Stock Exchange is the only stock market in the United States.

Ottocell Motor Company just paid a dividend of $1.40.Analysts expect its dividend to grow at a rate of 10 percent next year, 8 percent for the following two years, and then a constant rate of 5 percent thereafter.What is the expected dividend per share at the end of year 5?

An investor who uses a market order instructs her brokerage firm to buy a given quantity of shares at the best available price.

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

Otobai Motor Company just paid a dividend of $1.40.Analysts expect its dividend to grow at a rate of 18 percent for the next three years and then a constant rate of 5 percent thereafter.What is the expected dividend per share at the end of year 5?

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

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

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

Explain the term secondary market.

A stock's price is based on the expected present value, at the market capitalization rate, of all the stock's future earnings.

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