Chapter 4 Quiz, The Value of Common Stocks
1.
The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows:
A.
(dividends / hi)
B.
(dividends / lo)
C.
(dividends / close)
D.
None of the above
2.
The Wall Street Journal quotation for a company has the following values: Div: 2.28, PE: 19, Close: 75 3/16. Calculate the dividend pay out ratio for the company.
A.
59%
B.
12%
C.
75%
D.
None of the above
3.
Sam's Company expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two and then be sold for $136 per share. If the required rate on the stock is 20%, what is the current value of the stock?
A.
$100.10
B.
$105.69
C.
$110.00
D.
$120.29
4.
The constant dividend growth formula P
0
= D
1
/(
g
-g) assumes:
A.
The dividends are growing rate at a constant rate g forever.
B.
g
> g
C.
g is never negative.
D.
Both A and B
5.
Dividend growth rate for a stable firm can be estimated as:
A.
Plow back rate * the return on equity (ROE)
B.
Plow back rate / the return on equity (ROE)
C.
Plow back rate +the return on equity (ROE)
D.
Plow back rate - the return on equity (ROE)
6.
Franks Co. is currently paying a dividend of $2.20 per share. The dividends are expected to grow at 25% per year for the next four years and then grow 5% per year thereafter. Calculate the expected dividend in year 6.
A.
$5.37
B.
$2.95
C.
$5.92
D.
$8.39
7.
The value of the stock:
A.
Increases as the dividend growth rate increases
B.
Increases as the required rate of return decreases
C.
Increases as the required rate of return increases
D.
Both A and B
8.
Companies with higher expected growth opportunities usually sell for:
A.
Lower P/E ratio
B.
Higher P/E ratio
C.
A price that is independent of P/E ratio
D.
A price that the dependent upon the payment ratio
9.
A high proportion of the value a growth stock comes from:
A.
Past dividend payments
B.
Past earnings
C.
PVGO (Present Value of the Growth Opportunities)
D.
Both A and B
10.
FasGrow is a no growth firm and has two million shares outstanding. It is expected to earn a constant 20 million per year on its assets. If all earnings are paid out as dividends and the cost of capital is 10%, calculate the current price per share for the stock.
A.
$200
B.
$100
C.
$150
D.
$50
11.
Discounted cash flow formulas work for the valuation of:
A.
Stocks with constant dividend growth
B.
Businesses
C.
Stocks with super normal dividend growth
D.
All of the above
12.
The present value of free cash flow is $5 million and the present value of the horizon value is $10 million. Calculate the present value of the business.
A.
$5 million
B.
$10 million
C.
$15 million
D.
None of the above
13.
Shareholders receive cash from the firm in the form of dividends and capital gains.
A.
True
B.
False
14.
The return that is expected by investors from a common stock is often called its market capitalization rate.
A.
True
B.
False
15.
The value of a share of common stock is equal to the disconnected stream of free cash flow per share.
A.
True
B.
False
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