Question 1

Which one of the following transactions occurs in the primary market?

Accepted Answer

A)  Repurchase of GHI stock from Tim by GHI
B)  Tax-free gift of DEF stock to Heather by Jennifer
C)  Sale of ABC stock by Fred Jones to Mary Smith
D)  Initial sale of JKL stock by JKL to Jamie
E)  Transfer of MNO stock from Tom to his son,JonF) A) and E)
G) A) and C)

Question 2

Duncan Street Mills is an all-equity firm with 32,000 shares of stock outstanding.The firm expects sales of $520,000 next year.Sales are expected to grow by 8 percent for the following 2 years and then level off to a constant 3 percent growth rate.Net cash flow varies in direct proportion to sales and is currently equal to 16 percent of sales.The required return is 17 percent.What is the estimated current value of one share of stock?

Accepted Answer

A)  $20.10
B)  $22.03
C)  $18.94
D)  $19.76
E)  $18.01F) A) and D)
G) D) and E)

Question 3

Janlea Co.had total net earnings of $158,600 this past year and paid out 60 percent of those earnings in dividends.There are 84,000 shares of stock outstanding at a current market price of $18.43 a share.If the dividend growth rate is 2.8 percent,what is the required rate of return?

Accepted Answer

A)  14.27%
B)  12.56%
C)  8.95%
D)  10.40%
E)  11.60%F) All of the above
G) C) and E)

Question 4

Denver Machinery has 140,800 shares of stock outstanding,and each share receives one vote for each open seat on the board of directors.There are five open seats at this time.How many shares must you control to guarantee your personal election to the board if the firm uses cumulative voting?

Accepted Answer

A)  17,001 shares
B)  28,001 shares
C)  28,160 shares
D)  23,468 shares
E)  19,251 sharesF) A) and D)
G) B) and E)

Question 5

JJ Companies will pay an annual dividend of $4.20 a share on its common stock next year.Last week,the company paid a dividend of $4.00 a share.The company adheres to a constant rate of growth dividend policy.What will one share of this stock be worth 8 years from now if the applicable discount rate is 14 percent?

Accepted Answer

A)  $68.95
B)  $81.44
C)  $74.21
D)  $71.16
E)  $77.09F) A) and E)
G) B) and D)

Question 6

The free cash flow model,as compared to other models,tends to be most helpful when valuing a share of stock in a:

Accepted Answer

A)  firm that pays dividends that increase at a constant rate of growth.
B)  firm having similar growth opportunities as other firms.
C)  non-dividend-paying firm that has external financing needs.
D)  firm that plans to lower its dividend growth rate in the near future.
E)  firm that pays a fixed annual dividend.F) B) and D)
G) B) and E)

Question 7

Differential growth refers to the stock of a firm that increases its dividend by

Accepted Answer

A)  three or more percent per year.
B)  a stated percent each year.
C)  a rate that is expected to be sustainable indefinitely.
D)  an amount in excess of $.25 per year.
E)  varying rates over a period of time.F) None of the above
G) A) and D)

Question 8

The voting procedure where a shareholder grants authority to another individual to vote his/her shares is called ________ voting.

Accepted Answer

A)  proxy
B)  deferred
C)  straight
D)  cumulative
E)  democraticF) A) and D)
G) D) and E)

Question 9

In a stock market report,the open price represents the

Accepted Answer

A)  price a dealer is willing to pay.
B)  price at which a designated market maker will sell.
C)  first trade of the day.
D)  closing price on the previous trading day.
E)  current bid price.F) C) and E)
G) B) and D)

Question 10

Blasco just paid an annual dividend of $1.63 a share.What is one share of this stock worth to you if the dividends increase by 3 percent annually and you require a rate of return of 14 percent?

Accepted Answer

A)  $12.40
B)  $11.99
C)  $10.54
D)  $15.26
E)  $11.64F) B) and E)
G) A) and B)

Question 11

Lew,an individual investor,sold 100 shares of Global Tech stock on Monday.Janice,another individual investor,purchased those shares but never met Lew.You know for certain that this trade occurred in which market?

Accepted Answer

A)  Primary market
B)  Dealer market
C)  NASDAQ
D)  Secondary market
E)  NYSEF) C) and E)
G) A) and C)

Question 12

An agent who arranges security transactions among investors without maintaining an inventory is called a

Accepted Answer

A)  broker.
B)  trader.
C)  capitalist.
D)  principal.
E)  dealer.F) A) and E)
G) D) and E)

Question 13

The Yarn Outlet has net income of $87,400 for the year with 6,500 shares of stock outstanding.Big Knitter is a similar firm with similar growth opportunities that has 8,400 shares of stock outstanding with a market price of $9.34 a share and earnings per share of $.86.What is the estimated value of the Yarn Outlet?

Accepted Answer

A)  $1,016,279
B)  $837,040
C)  $1,142,105
D)  $751,620
E)  $949,205F) D) and E)
G) None of the above

Question 14

Wilton's Market just announced its next annual dividend will be $1.62 a share with future dividends increasing by 2.2 percent annually.How much will one share of this stock be worth 6 years from now if the required return is 12.5 percent?

Accepted Answer

A)  $16.76
B)  $17.92
C)  $18.14
D)  $18.32
E)  $15.79F) C) and D)
G) B) and D)

Question 15

A ________ is a form of equity security that has a stated liquidating value.

Accepted Answer

A)  debenture
B)  bond
C)  common stock
D)  preferred stock
E)  proxyF) B) and D)
G) None of the above

Question 16

The rate at which a stock's price is expected to appreciate (or depreciate) is called the ________ yield.

Accepted Answer

A)  current
B)  capital gains
C)  dividend
D)  total
E)  earningsF) C) and D)
G) A) and B)

Question 17

Corporate dividends

Accepted Answer

A)  are a source of tax-free income for individual investors.
B)  reduce the taxable income of the payer.
C)  are only 70 percent taxable to corporate shareholders.
D)  are paid out of pretax income and thus are taxed at the personal level.
E)  are taxed at the personal level even though they are paid from after-tax income.F) B) and D)
G) All of the above

Question 18

Last week,Railway Cabooses paid its annual dividend of $1.12 a share.The company has been reducing its dividends by 4 percent each year.What is one share of stock worth at a required return of 17 percent?

Accepted Answer

A)  $4.06
B)  $5.12
C)  $6.80
D)  $8.27
E)  $7.90F) C) and E)
G) B) and C)

Question 19

New Tours last annual dividend was $2 a share.The company plans to lower the dividend by $.30 each year for the next 3 years.In Year 5,it will pay a final liquidating dividend of $17 a share.If the required return is 22 percent,what is the current per share value of this stock?

Accepted Answer

A)  $9.23
B)  $13.08
C)  $10.61
D)  $14.13
E)  $8.86F) C) and D)
G) A) and B)

Question 20

The ELL common stock pays an annual dividend of $2.23 a share and is committed to maintaining a constant dividend.How much are you willing to pay for one share of this stock if your required return is 16 percent?

Accepted Answer

A)  $14.56
B)  $14.67
C)  $13.94
D)  $13.88
E)  $14.04F) A) and E)
G) C) and D)

Exam 6: Stock Valuation

A ________ is a form of equity security that has a stated liquidating value.

Correct Answer
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The voting procedure where a shareholder grants authority to another individual to vote his/her shares is called ________ voting.

Correct Answer
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Differential growth refers to the stock of a firm that increases its dividend by

Correct Answer
verified

Wilton's Market just announced its next annual dividend will be $1.62 a share with future dividends increasing by 2.2 percent annually.How much will one share of this stock be worth 6 years from now if the required return is 12.5 percent?

Correct Answer
verified

Lew,an individual investor,sold 100 shares of Global Tech stock on Monday.Janice,another individual investor,purchased those shares but never met Lew.You know for certain that this trade occurred in which market?

Correct Answer
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Correct Answer
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Correct Answer
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New Tours last annual dividend was $2 a share.The company plans to lower the dividend by $.30 each year for the next 3 years.In Year 5,it will pay a final liquidating dividend of $17 a share.If the required return is 22 percent,what is the current per share value of this stock?

Correct Answer
verified

The rate at which a stock's price is expected to appreciate (or depreciate) is called the ________ yield.

Correct Answer
verified

Corporate dividends

Correct Answer
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Denver Machinery has 140,800 shares of stock outstanding,and each share receives one vote for each open seat on the board of directors.There are five open seats at this time.How many shares must you control to guarantee your personal election to the board if the firm uses cumulative voting?

Correct Answer
verified

Blasco just paid an annual dividend of $1.63 a share.What is one share of this stock worth to you if the dividends increase by 3 percent annually and you require a rate of return of 14 percent?

Correct Answer
verified

Last week,Railway Cabooses paid its annual dividend of $1.12 a share.The company has been reducing its dividends by 4 percent each year.What is one share of stock worth at a required return of 17 percent?

Correct Answer
verified

Janlea Co.had total net earnings of $158,600 this past year and paid out 60 percent of those earnings in dividends.There are 84,000 shares of stock outstanding at a current market price of $18.43 a share.If the dividend growth rate is 2.8 percent,what is the required rate of return?

Correct Answer
verified

The ELL common stock pays an annual dividend of $2.23 a share and is committed to maintaining a constant dividend.How much are you willing to pay for one share of this stock if your required return is 16 percent?

Correct Answer
verified

Which one of the following transactions occurs in the primary market?

Correct Answer
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An agent who arranges security transactions among investors without maintaining an inventory is called a

Correct Answer
verified

Correct Answer
verified

In a stock market report,the open price represents the

Correct Answer
verified

The free cash flow model,as compared to other models,tends to be most helpful when valuing a share of stock in a:

Correct Answer
verified

Exam 6: Stock Valuation

A ________ is a form of equity security that has a stated liquidating value.

Correct AnswerverifiedShow Answer

The voting procedure where a shareholder grants authority to another individual to vote his/her shares is called ________ voting.

Correct AnswerverifiedShow Answer

Differential growth refers to the stock of a firm that increases its dividend by

Correct AnswerverifiedShow Answer

Wilton's Market just announced its next annual dividend will be $1.62 a share with future dividends increasing by 2.2 percent annually.How much will one share of this stock be worth 6 years from now if the required return is 12.5 percent?

Correct AnswerverifiedShow Answer

Lew,an individual investor,sold 100 shares of Global Tech stock on Monday.Janice,another individual investor,purchased those shares but never met Lew.You know for certain that this trade occurred in which market?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

New Tours last annual dividend was $2 a share.The company plans to lower the dividend by $.30 each year for the next 3 years.In Year 5,it will pay a final liquidating dividend of $17 a share.If the required return is 22 percent,what is the current per share value of this stock?

Correct AnswerverifiedShow Answer

The rate at which a stock's price is expected to appreciate (or depreciate) is called the ________ yield.

Correct AnswerverifiedShow Answer

Corporate dividends

Correct AnswerverifiedShow Answer

Denver Machinery has 140,800 shares of stock outstanding,and each share receives one vote for each open seat on the board of directors.There are five open seats at this time.How many shares must you control to guarantee your personal election to the board if the firm uses cumulative voting?

Correct AnswerverifiedShow Answer

Blasco just paid an annual dividend of $1.63 a share.What is one share of this stock worth to you if the dividends increase by 3 percent annually and you require a rate of return of 14 percent?

Correct AnswerverifiedShow Answer

Last week,Railway Cabooses paid its annual dividend of $1.12 a share.The company has been reducing its dividends by 4 percent each year.What is one share of stock worth at a required return of 17 percent?

Correct AnswerverifiedShow Answer

Janlea Co.had total net earnings of $158,600 this past year and paid out 60 percent of those earnings in dividends.There are 84,000 shares of stock outstanding at a current market price of $18.43 a share.If the dividend growth rate is 2.8 percent,what is the required rate of return?

Correct AnswerverifiedShow Answer

The ELL common stock pays an annual dividend of $2.23 a share and is committed to maintaining a constant dividend.How much are you willing to pay for one share of this stock if your required return is 16 percent?

Correct AnswerverifiedShow Answer

Which one of the following transactions occurs in the primary market?

Correct AnswerverifiedShow Answer

An agent who arranges security transactions among investors without maintaining an inventory is called a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a stock market report,the open price represents the

Correct AnswerverifiedShow Answer

The free cash flow model,as compared to other models,tends to be most helpful when valuing a share of stock in a:

Correct AnswerverifiedShow Answer

Correct Answer
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