Deck 8: Basic Stock Valuation

Question 1

Which of the following statements is CORRECT?

A) two firms with the same expected free cash flows and growth rates must also have the same value of operations.
B) it is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
C) if a company has a weighted average cost of capital wacc = 12%, and if its free cash flows are expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
D) the value of operations is the present value of all expected future free cash flows, discounted at the free cash flow growth rate.
E) the constant growth model takes into consideration the capital gains investors expect to earn on a stock.

Answer 1

E
Statement e is true, because the expected growth rate is also the expected capital gains yield. All the other statements are false.

Question 2

According to the basic FCF stock valuation model, the value an investor should assign to a share of stock is dependent on the length of time he or she plans to hold the stock.

Answer 2

False

Question 3

Which of the following statements is NOT CORRECT?

A) the free cash flow valuation model discounts free cash flows by the required return on equity.
B) the free cash flow valuation model can be used to find the value of a division.
C) an important step in applying the free cash flow valuation model is forecasting the firm's pro forma financial statements.
D) free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.
E) the free cash flow valuation model can be used both for companies that pay dividends and those that do not pay dividends.

Answer 3

A

Question 4

The free cash flow valuation model cannot be used unless a company doesn't pay dividends.

Question 5

Young & Liu Inc.'s free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions?

A) $948
B) $998
C) $1,050
D) $1,103
E) $1,158

Question 6

Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?

A) all common stocks, regardless of class, must have the same voting rights.
B) all firms have several classes of common stock.
C) all common stock, regardless of class, must pay the same dividend.
D) some class or classes of common stock are entitled to more votes per share than other classes.
E) all common stocks fall into one of three classes: a, b, and c.

Question 7

Justus Motor Co.has a WACC of 11.50%, and its value of operations is $25.00 million. Justus's free cash flow is expected to grow at a constant rate of 7.00%. What was the last free cash flow, FCF0 in millions?

A) $0.95
B) $1.05
C) $1.16
D) $1.27
E) $1.40

Question 8

A proxy is a document giving one party the authority to act for another party, including the power to vote shares of common stock. Proxies can be important tools relating to control of firms.

Question 9

Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

Question 10

If a firm's stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management. Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight.

Question 11

If a company's free cash flows are expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

A) the company's stock's dividend yield is 5%.
B) the value of operations is expected to decline in the future.
C) the company's wacc must be equal to or less than 5%.
D) the company's value of operations one year from now is expected to be 5% above the current price.
E) the expected return on the company's stock is 5% a year.

Question 12

A company's free cash flow was just FCF0 = $1.50 million. The weighted average cost of capital is WACC = 10.1%, and the constant growth rate is g = 4.0%. What is the current value of operations?

A) $23.11 million
B) $23.70 million
C) $24.31 million
D) $24.93 million
E) $25.57 million

Question 13

The preemptive right is important to shareholders because it

A) will result in higher dividends per share.
B) is included in every corporate charter.
C) protects the current shareholders against a dilution of their ownership interests.
D) protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate.
E) allows managers to buy additional shares below the current market price.

Question 14

Lance Inc.'s free cash flow was just $1.00 million. If the expected long-run growth rate for this company is 5.4%, if the weighted average cost of capital is 11.4%, Lance has $4 million in short-term investments and $3 million in debt, and 1 million shares outstanding, what is the intrinsic stock price?

A) $17.28
B) $17.70
C) $18.13
D) $18.57
E) $19.01

Question 15

Which of the following statements is CORRECT?

A) the preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
B) the preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
C) the free cash flow valuation model, vops =fcf1/(wacc ? g), cannot be used for firms that have negative growth rates.
D) the free cash flow valuation model, vops = fcf1/(wacc ? g), can be used only for firms whose growth rates exceed their wacc.
E) if a company has two classes of common stock, class a and class b, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.

Question 16

Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock.

Question 17

The projected cash flow for the next year for Minesuah Inc. is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?

A) $1,714,750
B) $1,805,000
C) $1,900,000
D) $2,000,000
E) $2,100,000

Question 18

The preemptive right gives current stockholders the right to purchase, on a pro rata basis, any new shares issued by the firm. This right helps protect current stockholders against both dilution of control and dilution of value.

Question 19

Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Question 20

The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.

Question 21

The free cash flows (in millions) shown below are forecast by Parker & Sons. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).

A) $1,456
B) $1,529
C) $1,606
D) $1,686
E) $1,770

Question 22

The constant growth dividend model used to evaluate the prices of common stocks is conceptually similar to the model used to find the price of perpetual preferred stock or other perpetuities.

Question 23

Which of the following statements is CORRECT?

A) if a company has a wacc = 12% and its free cash flow is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
B) the free cash flow valuation model for constant growth, vop = fcf1/(wacc ? g), can be used to value firms whose free cash flows are expected to decline at a constant rate, i.e., to grow at a negative rate.
C) the value of operations of a stock is the present value of all expected future free cash flows, discounted at the free cash flow growth rate.
D) the constant growth model cannot be used for a zero growth stock, where free cash flows are expected to remain constant over time.
E) the constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

Question 24

Judd Corporation has a weighted average cost of capital of 10.25%, and its value of operations is $57.50 million. Free cash flow is expected to grow at a constant rate of 6.00% per year. What is the expected year-end free cash flow, FCF1 in millions?

A) $2.20
B) $2.44
C) $2.69
D) $2.96
E) $3.25

Question 25

Decker Tires' free cash flow was just FCF0 = $1.32. Analysts expect the company's free cash flow to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The WACC for this company 9.00%. Decker has $4 million in short-term investments and $14 million in debt and 1 million shares outstanding. What is the best estimate of the stock's current intrinsic price?

A) $31.59
B) $32.65
C) $33.75
D) $34.87
E) $35.99

Question 26

The expected total return on a share of stock refers to the dividend yield less any commissions paid when the stock is purchased and sold.

Question 27

Atchley Corporation's last free cash flow was $1.55 million. The free cash flow growth rate is expected to be constant at 1.5% for 2 years, after which free cash flows are expected to grow at a rate of 8.0% forever. The firm's weighted average cost of capital (WACC) is 12.0%. Atchley has $2 million in short-term debt and $14 million in debt and 1 million shares outstanding. What is the best estimate of the intrinsic stock price?

A) $25.05
B) $26.16
C) $27.30
D) $28.48
E) $29.70

Question 28

Kinkead Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be ?$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?

A) $158
B) $167
C) $175
D) $184
E) $193

Question 29

The value of Broadway-Brooks Inc.'s operations is $900 million, based on the free cash flow valuation model. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stock's price per share?

A) $23.00
B) $25.56
C) $28.40
D) $31.24
E) $34.36

Question 30

Heath and Logan Inc. forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?

A) $315
B) $331
C) $348
D) $367
E) $386

Question 31

According to the nonconstant growth model discussed in the textbook, the discount rate used to find the present value of the expected cash flows during the initial growth period is the same as the discount rate used to find the PVs of cash flows during the subsequent constant growth period.

Question 32

Barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is expected to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?

A) $719
B) $757
C) $797
D) $839
E) $883

Question 33

A company is expected to have free cash flows of $0.75 million next year. The weighted average cost of capital is WACC = 10.5%, and the expected constant growth rate is g = 6.4%. The company has $2 million in short-term investments, $2 million in debt, and 1 million shares. What is the stock's current intrinsic stock price?

A) $17.39
B) $17.84
C) $18.29
D) $18.75
E) $19.22

Question 34

Based on the free cash flow valuation model, the value of Weidner Co.'s operations is $1,200 million. The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If Weidner has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?

A) $24.90
B) $27.67
C) $30.43
D) $33.48
E) $36.82

Question 35

Reynolds Construction's value of operations is $750 million based on the free cash flow valuation model. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?

A) $429
B) $451
C) $475
D) $500
E) $525

Question 36

Gere Furniture forecasts a free cash flow of $40 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5% thereafter. If the weighted average cost of capital is 10% and the cost of equity is 15%, what is the horizon value, in millions at t = 3?

A) $840
B) $882
C) $926
D) $972
E) $1,021

Question 37

Free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.

Question 38

Based on the free cash flow valuation model, Bizzaro Co.'s value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. Bizzaro has 10 million shares of stock outstanding. What is the best estimate of the stock's price per share?

A) $13.72
B) $14.44
C) $15.20
D) $16.00
E) $16.80

Question 39

Huxley Building Supplies' last free cash flow was $1.75 million. Its free cash flow growth rate is expected to be constant at 25% for 2 years, after which free cash flows are expected to grow at a rate of 6% forever. Its weighted average cost of capital WACC is 12%. Huxley has $5 million in short-term investments and $7 million in debt and has 1 million shares outstanding. What is the best estimate of the current intrinsic stock price?

A) $39.58
B) $40.64
C) $41.71
D) $42.80
E) $44.92

Question 40

The free cash flows (in millions) shown below are forecast by Simmons Inc. If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?

A) $586
B) $617
C) $648
D) $680
E) $714

Question 41

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = ?5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

A) the company's dividend yield 5 years from now is expected to be 10%.
B) the constant growth model cannot be used because the growth rate is negative.
C) the company's expected capital gains yield is 5%.
D) the company's expected stock price at the beginning of next year is $9.50.
E) the company's current stock price is $20.

Question 42

Which of the following statements is CORRECT?

A) two firms with the same expected dividend and growth rates must also have the same stock price.
B) it is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
C) if a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
D) the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
E) the constant growth model takes into consideration the capital gains investors expect to earn on a stock.

Question 43

You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think

A) the stock should be sold.
B) the stock is a good buy.
C) management is probably not trying to maximize the price per share.
D) dividends are not likely to be declared.
E) the stock is experiencing supernormal growth.

Question 44

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A) the two stocks could not be in equilibrium with the numbers given in the question.
B) a's expected dividend is $0.50.
C) b's expected dividend is $0.75.
D) a's expected dividend is $0.75 and b's expected dividend is $1.20.
E) the two stocks should have the same expected dividend.

Question 45

If a firm's expected growth rate increased then its required rate of return would

A) decrease.
B) fluctuate less than before.
C) fluctuate more than before.
D) possibly increase, possibly decrease, or possibly remain constant.
E) increase.

Question 46

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A) stock a has a higher dividend yield than stock b.
B) currently the two stocks have the same price, but over time stock b's price will pass that of a.
C) since stock a's growth rate is twice that of stock b, stock a's future dividends will always be twice as high as stock b's.
D) the two stocks should not sell at the same price. if their prices are equal, then a disequilibrium must exist.
E) stock a's expected dividend at t = 1 is only half that of stock b.

Question 47

Which of the following statements is CORRECT, assuming stocks are in equilibrium?

A) assume that the required return on a given stock is 13%. if the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.
B) a stock's dividend yield can never exceed its expected growth rate.
C) a required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.
D) other things held constant, the higher a company's beta coefficient, the lower its required rate of return.
E) the dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

Question 48

Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?

A) if one stock has a higher dividend yield, it must also have a lower dividend growth rate.
B) if one stock has a higher dividend yield, it must also have a higher dividend growth rate.
C) the two stocks must have the same dividend growth rate.
D) the two stocks must have the same dividend yield.
E) the two stocks must have the same dividend per share.

Question 49

Stocks A and B have the same price and are in equilibrium, but Stock A has the higher required rate of return. Which of the following statements is CORRECT?

A) stock b must have a higher dividend yield than stock a.
B) stock a must have a higher dividend yield than stock b.
C) if stock a has a higher dividend yield than stock b, its expected capital gains yield must be lower than stock b's.
D) stock a must have both a higher dividend yield and a higher capital gains yield than stock b.
E) if stock a has a lower dividend yield than stock b, its expected capital gains yield must be higher than stock b's.

Question 50

Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A) stock y has a higher dividend yield than stock x.
B) one year from now, stock x's price is expected to be higher than stock y's price.
C) stock x has the higher expected year-end dividend.
D) stock y has a higher capital gains yield.
E) stock x has a higher dividend yield than stock y.

Question 51

The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

A) if stock y and stock x have the same dividend yield, then stock y must have a lower expected capital gains yield than stock x.
B) if stock x and stock y have the same current dividend and the same expected dividend growth rate, then stock y must sell for a higher price.
C) the stocks must sell for the same price.
D) stock y must have a higher dividend yield than stock x.
E) if the market is in equilibrium, and if stock y has the lower expected dividend yield, then it must have the higher expected growth rate.

Question 52

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A) these two stocks must have the same dividend yield.
B) these two stocks should have the same expected return.
C) these two stocks must have the same expected capital gains yield.
D) these two stocks must have the same expected year-end dividend.
E) these two stocks should have the same price.

Question 53

Stock X has the following data. Assuming the stock market is efficient and the stock is in equilibrium, which of the following statements is CORRECT?

A) the stock's expected dividend yield and growth rate are equal.
B) the stock's expected dividend yield is 5%.
C) the stock's expected capital gains yield is 5%.
D) the stock's expected price 10 years from now is $100.00.
E) the stock's required return is 10%.

Question 54

Which of the following statements is CORRECT?

A) the preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
B) the preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
C) the stock valuation model, p0 = d1/(rs ? g), cannot be used for firms that have negative growth rates.
D) the stock valuation model, p0 = d1/(rs ? g), can be used only for firms whose growth rates exceed their required returns.
E) if a company has two classes of common stock, class a and class b, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.

Question 55

Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A) stock x pays a higher dividend per share than stock y.
B) one year from now, stock x should have the higher price.
C) stock y has a lower expected growth rate than stock x.
D) stock y has the higher expected capital gains yield.
E) stock y pays a higher dividend per share than stock x.

Question 56

Which of the following statements is CORRECT?

A) preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
B) the preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
C) one of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
D) one of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
E) a major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.

Question 57

Merrell Enterprises' stock has an expected return of 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

A) the stock's dividend yield is 8%.
B) the current dividend per share is $4.00.
C) the stock price is expected to be $54 a share one year from now.
D) the stock price is expected to be $57 a share one year from now.
E) the stock's dividend yield is 7%.

Question 58

Which of the following statements is CORRECT?

A) if a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
B) the stock valuation model, p0 = d1/(rs ? g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.
C) the price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
D) the constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.
E) the constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

Question 59

Which of the following statements is CORRECT?

A) the preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
B) corporations cannot buy the preferred stocks of other corporations.
C) preferred dividends are not generally cumulative.
D) a big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.
E) preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.

Question 60

If a stock's dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

A) the stock's dividend yield is 5%.
B) the price of the stock is expected to decline in the future.
C) the stock's required return must be equal to or less than 5%.
D) the stock's price one year from now is expected to be 5% above the current price.
E) the expected return on the stock is 5% a year.

Question 61

National Advertising just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price?

A) $14.52
B) $14.89
C) $15.26
D) $15.64
E) $16.03

Question 62

Connolly Co.'s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Connolly's expected stock price in 7 years, i.e., what is ?

A) $37.52
B) $39.40
C) $41.37
D) $43.44
E) $45.61

Question 63

Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is 6.4%. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A) stock a must have a higher dividend yield than stock b.
B) stock b's dividend yield equals its expected dividend growth rate.
C) stock b must have the higher required return.
D) stock b could have the higher expected return.
E) stock a must have a higher stock price than stock b.

Question 64

Burke Tires just paid a dividend of D0 = $1.32. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What is the best estimate of the stock's current market value?

A) $41.59
B) $42.65
C) $43.75
D) $44.87
E) $45.99

Question 65

If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock's expected total return for the coming year?

A) 7.54%
B) 7.73%
C) 7.93%
D) 8.13%
E) 8.34%

Question 66

If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock's expected dividend yield for the coming year?

A) 4.12%
B) 4.34%
C) 4.57%
D) 4.81%
E) 5.05%

Question 67

Kelly Enterprises' stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now?

A) $40.17
B) $41.20
C) $42.26
D) $43.34
E) $44.46

Question 68

The Jameson Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is Jameson's current stock price, P0?

A) $18.62
B) $19.08
C) $19.56
D) $20.05
E) $20.55

Question 69

If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock's expected total return for the coming year?

A) 8.37%
B) 8.59%
C) 8.81%
D) 9.03%
E) 9.27%

Question 70

If D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock's expected capital gains yield for the coming year?

A) 6.50%
B) 6.83%
C) 7.17%
D) 7.52%
E) 7.90%

Question 71

Dyer Furniture is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is Dyer's current stock price?

A) $28.90
B) $29.62
C) $30.36
D) $31.12
E) $31.90

Question 72

McGaha Enterprises expects earnings and dividends to grow at a rate of 25% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?

A) $26.77
B) $27.89
C) $29.05
D) $30.21
E) $31.42

Question 73

A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 6.4%. What is the stock's current price?

A) $17.39
B) $17.84
C) $18.29
D) $18.75
E) $19.22

Question 74

Franklin Corporation is expected to pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock sells for $32.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

A) 6.01%
B) 6.17%
C) 6.33%
D) 6.49%
E) 6.65%

Question 75

Hirshfeld Corporation's stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1?

A) $2.20
B) $2.44
C) $2.69
D) $2.96
E) $3.25

Question 76

$35.50 per share is the current price for Foster Farms' stock. The dividend is projected to increase at a constant rate of 5.50% per year. The required rate of return on the stock, rs, is 9.00%. What is the stock's expected price 3 years from today?

A) $37.86
B) $38.83
C) $39.83
D) $40.85
E) $41.69

Question 77

If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock's expected dividend yield for the coming year?

A) 4.42%
B) 4.66%
C) 4.89%
D) 5.13%
E) 5.39%

Question 78

A share of Lash Inc.'s common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 11.4%, what is the stock price?

A) $16.28
B) $16.70
C) $17.13
D) $17.57
E) $18.01

Question 79

Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0?

A) $0.95
B) $1.05
C) $1.16
D) $1.27
E) $1.40

Question 80

A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?

A) $23.11
B) $23.70
C) $24.31
D) $24.93
E) $25.57