Question 1

JPM has earnings per share of $3.75 and P/E of 47.What is the stock price?

Accepted Answer

A)  $174.08 
B)  $176.25 
C)  $185.95 
D)  $112.98

Question 2

At your discount brokerage firm,it costs $9.95 per stock trade.How much money do you need to buy 100 shares of Ralph Lauren (RL),which trades at $85.13?

Accepted Answer

A)  $8,503.05 
B)  $8,503.00 
C)  $8,522.95 
D)  $9,508.00

Question 3

Individuals who use their own stock inventory and capital to buy and sell the stocks they represent are called:

Accepted Answer

A)  market makers. 
B)  brokers. 
C)  investors. 
D)  none of the options.

Question 4

Coca-Cola recently paid a $3.00 dividend.Investors expect a 12 percent return on this stock.What is the difference in price if Coca-Cola is expected to grow at 6 percent versus 8 percent?

Accepted Answer

A)  $18 
B)  $48 
C)  $28 
D)  $38

Question 5

If a preferred stock from Pfizer Inc.(PFE)pays $3.00 in annual dividends,and the required return on the preferred stock is 7 percent,what's the value of the stock?

Accepted Answer

A)  $0.21 
B)  $0.43 
C)  $21.00 
D)  $42.86

Question 6

Stock valuation model dynamics make clear that lower discount rates lead to:

Accepted Answer

A)  lower valuations. 
B)  higher valuations. 
C)  lower growth rates. 
D)  higher growth rates.

Question 7

Suppose that a firm's recent earnings per share and dividends per share are $3.00 and $1.50,respectively.Both are expected to grow at 10 percent.However,the firm's current P/E ratio of 20 seems high for this growth rate.The P/E ratio is expected to fall to 16 within five years.Compute a value for this stock by first estimating the dividends over the next five years and the stock price in five years.Then discount these cash flows using a 14 percent required rate.

Accepted Answer

A)  $31.68 
B)  $40.15 
C)  $46.89 
D)  $60.00

Question 8

At your full-service brokerage firm,it costs $120 per stock trade.How much money do you receive after selling 200 shares of Ralph Lauren (RL),which trades at $85.13?

Accepted Answer

A)  $16,546.00 
B)  $16,906.00 
C)  $17,026.00 
D)  $17,146.00

Question 9

GEN has 3 million shares outstanding and a P/E ratio of 15.Its earnings per share is $3.00.What is GEN's market capitalization?

Accepted Answer

A)  $45,000,000 
B)  $135,000,000 
C)  $112,000,000 
D)  $9,000,000

Question 10

A firm is expected to pay a dividend of $2.00 next year and $3.75 the following year.Financial analysts believe the stock will be at their price target of $125.00 in two years.Compute the value of this stock with a required rate of return of 15 percent.

Accepted Answer

A)  $78.34 
B)  $81.05 
C)  $87.13 
D)  $99.09

Question 11

ABC has a net profit margin of 3.3 percent on Sales of $10,000,000.The firm has 50,000 shares outstanding.If the firm's P/E is 19 times,how much is the stock selling for?

Accepted Answer

A)  $41.72 
B)  $34.96 
C)  $125.40 
D)  $99.16

Question 12

A firm recently paid a $0.50 annual dividend.The dividend is expected to increase by 10 percent in each of the next three years.In the third year,the stock price is expected to be $110.If the required return is 15 percent,what is its value?

Accepted Answer

A)  $62.53 
B)  $68.95 
C)  $73.71 
D)  $78.67

Question 13

Coca-Cola recently paid a $3.00 dividend.Investors expect a 12 percent return on this stock.What is the percentage change in price if Coca-Cola is expected to grow at 7 percent versus 8 percent?

Accepted Answer

A)  31.29 percent 
B)  19.82 percent 
C)  21.60 percent 
D)  26.17 percent

Question 14

If a preferred stock from Ecology and Environment,Inc.(EEI)pays $2.50 in annual dividends,and the required return on the preferred stock is 5.8 percent,what's the value of the stock?

Accepted Answer

A)  $0.15 
B)  $0.43 
C)  $14.50 
D)  $43.10

Question 15

Which of the following is incorrect with respect to limit orders?

Accepted Answer

A)  They can be used only to buy stock. 
B)  If the current quote does not meet the price cited in the limit order, the trade is not executed. 
C)  The advantage of the limit order is that the investor makes the trade at the desired price. 
D)  The disadvantage of the limit order is that the trade might not be executed at all.

Question 16

A fast growing firm recently paid a dividend of $1.00 per share.The dividend is expected to increase at a rate of 15 percent for the next 3 years.Afterwards,a more stable 6 percent growth rate can be assumed.If a 10 percent discount rate is appropriate for this stock,what is its value?

Accepted Answer

A)  $33.54 
B)  $37.99 
C)  $39.37 
D)  $42.03

Question 17

Annual dividends of Wal-Mart Stores (WMT)grew from $0.23 in 2000 to $0.83 in 2007.What was the annual growth rate?

Accepted Answer

A)  2.61 percent 
B)  20.12 percent 
C)  37.29 percent 
D)  260.87 percent

Question 18

If Target Corp.(TGT)recently earned a profit of $6.07 earnings per share and has a P/E ratio of 16.5.The dividend has been growing at a 10 percent rate over the past few years.If this growth continues,what would be the stock price in five years if the P/E ratio remained unchanged? What would the price be if the P/E ratio increased to 18 in five years?

Accepted Answer

A)  $100.16, $109.26 respectively 
B)  $161.30, $175.96 respectively 
C)  $259.78, $283.39 respectively 
D)  $261.30, $275.96 respectively

Question 19

Which of these are valued as a special zero-growth case of the constant growth rate model?

Accepted Answer

A)  Common stock 
B)  Preferred stock 
C)  Future dividends 
D)  Future stock prices

Question 20

Consider a firm that had been priced using a 12 percent growth rate and a 16 percent required return.The firm recently paid a $5.00 dividend.The firm has just announced that because of a new joint venture,it will likely grow at a 12.5 percent rate.How much should the stock price change (in dollars and percentage)?

Accepted Answer

A)  $21.50; 13.72 percent 
B)  $21.50; 16.14 percent 
C)  $20.71; 14.79 percent 
D)  $20.71; 19.93 percent

Exam 8: Valuing Stocks