Question 1

Use the information for the question(s)below.
Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%.
-Suppose you plan to hold Von Bora stock for only one year.Your dividend yield from holding Von Bora stock for the first year is closest to:

Accepted Answer

A) 6.0%. 
B) 4.0%. 
C) 6.5%. 
D) 5.5%.

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) We should use the general dividend discount model to value the stock of a firm with rapid or changing growth. 
B) As firms mature,their growth slows to rates more typical of established companies. 
C) The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders. 
D) The simplest forecast for the firm's future dividends states that they will grow at a constant rate,g,forever.

Question 3

Use the information for the question(s)below.
Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%.
-Suppose you plan on purchasing Von Bora stock in one year,right after the $1.40 dividend is paid.You then plan on selling your stock at the end of year two,right after the $1.50 dividend is paid.The capital gain rate that you will receive on your investment is closest to:

Accepted Answer

A) 4.00%. 
B) 3.75%. 
C) 6.25%. 
D) 3.50%.

Question 4

If you want to value a firm but don't want to explicitly forecast its dividends,share repurchases,or its use of debt,what is the simplest model for you to use?

Accepted Answer

A) Discounted free cash flow model 
B) Dividend discount model 
C) Enterprise value model 
D) Total payout model

Question 5

Von Bora Corporation (VBC)is expected to pay a $2.00 dividend at the end of this year.If you expect VBC's dividend to grow by 5% per year forever and VBC's equity cost of capital is 13%,then the value of a share of VBC stock is closest to:

Accepted Answer

A) $25.00. 
B) $40.00. 
C) $15.40. 
D) $11.10.

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) Many managers make the mistake of focusing on accounting earnings as opposed to free cash flows. 
B) Given accurate information about any two of these variables (a firm's future cash flows,its cost of capital,and its share price)a valuation model allows us to make inferences about the third variable. 
C) A valuation model will tell us the most about the variable for which our prior information is the least reliable. 
D) The idea that investors are able to identify positive NPV trading opportunities is referred to as the efficient markets hypothesis.

Question 7

Use the information for the question(s)below.
Defenestration Industries plans to pay a $4.00 dividend this year and you expect that the firm's earnings are on track to grow at 5% per year for the foreseeable future.Defenestration's equity cost of capital is 13%.
-Suppose that Defenestration decides to pay a dividend of only $2 per share this year and use the remaining $2 per share to repurchase stock.If Defenestration maintains this dividend and total payout rate,then the rate at which Defenestration's dividends and earnings per share are expected to grow is closest to:

Accepted Answer

A) 7%. 
B) 13%. 
C) 9%. 
D) 5%.

Question 8

Use the following information to answer the question(s)below.
Rearden Metals has a current stock price of $30 share,is expected to pay a dividend of $1.20 in one year,and its expected price right after paying that dividend is $33.
-Rearden's equity cost of capital is closest to:

Accepted Answer

A) 4.0%. 
B) 6.4%. 
C) 8.2%. 
D) 14.0%.

Question 9

Which of the following formulas is INCORRECT?

Accepted Answer

A) Forward  =  
B) Forward  =  
C)   =  
D) Forward  =

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) Stock markets aggregate the information and views of many different investors. 
B) Only in the relatively rare case in which we have some superior information that other investors lack regarding the firm's cash flows and cost of capital would it make sense to second-guess the market stock price. 
C) In most situations,a valuation model is best applied to tell us something about the value of the firm's stock. 
D) The efficient market hypothesis implies that securities will be fairly priced,based on their future cash flows,given all information that is available to investors.

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) The total payout model allows us to ignore the firm's choice between dividends and share repurchases. 
B) By repurchasing shares,the firm increases its share count,which decreases its earning and dividends on a per-share basis. 
C) The total payout model discounts the total payouts that the firm makes to shareholders,which is the total amount spent on both dividends and share repurchases. 
D) In the dividend discount model,we implicitly assume that any cash paid out to the shareholders takes the form of a dividend.

Question 12

Which of the following formulas is INCORRECT?

Accepted Answer

A) P0 =  +  + ...+  
B) P0 =  
C) rE =  
D) P0 =

Question 13

Which of the following is NOT a way that a firm can increase its dividend?

Accepted Answer

A) By increasing its retention rate 
B) By decreasing its shares outstanding 
C) By increasing its earnings (net income) 
D) By increasing its dividend payout rate

Question 14

Monsters Inc.is a utility company that recently paid a common stock dividend of $2.35 per share.Determine the current price of a share of Monsters' common stock if its divided growth rate is expected to remain at 7 percent per year indefinitely and its equity cost of capital is 12 percent.

Accepted Answer

The answer of Monsters Inc.is a utility company that recently...

Question 15

You expect KT Industries (KTI)will have earnings per share of $3 this year and expect that they will pay out $1.50 of these earnings to shareholders in the form of a dividend.KTI's return on new investments is 15% and their equity cost of capital is 12%.The value of a share of KTI's stock is closest to:

Accepted Answer

A) $39.25. 
B) $20.00. 
C) $33.35. 
D) $12.50.

Question 16

Use the information for the question(s)below.
You expect CCM Corporation to generate the following free cash flows over the next five years:  Following year five,you estimate that CCM's free cash flows will grow at 5% per year and that CCM's weighted average cost of capital is 13%.
-If CCM has $150 million of debt and 12 million shares of stock outstanding,then the share price for CCM is closest to:

Accepted Answer

A) $49.50. 
B) $11.25. 
C) $20.50. 
D) $22.75.

Exam 9: Valuing Stocks

Which of the following statements is FALSE?

If you want to value a firm but don't want to explicitly forecast its dividends,share repurchases,or its use of debt,what is the simplest model for you to use?

Von Bora Corporation (VBC) is expected to pay a $2.00 dividend at the end of this year.If you expect VBC's dividend to grow by 5% per year forever and VBC's equity cost of capital is 13%,then the value of a share of VBC stock is closest to:

Which of the following statements is FALSE?

Use the following information to answer the question(s) below. Rearden Metals has a current stock price of $30 share,is expected to pay a dividend of $1.20 in one year,and its expected price right after paying that dividend is $33. -Rearden's equity cost of capital is closest to:

Which of the following formulas is INCORRECT?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following formulas is INCORRECT?

Which of the following is NOT a way that a firm can increase its dividend?

Monsters Inc.is a utility company that recently paid a common stock dividend of $2.35 per share.Determine the current price of a share of Monsters' common stock if its divided growth rate is expected to remain at 7 percent per year indefinitely and its equity cost of capital is 12 percent.