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Exam 8: Stock Valuationpart Four: Capital Budgeting

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Question 61

Multiple Choice

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Which one of the following is the electronic system used by the NYSE for directly transmitting orders to specialists?

A) OTCDOT
B) SuperDOT
C) Instinet
D) Internet
E) Floornet

F) B) and C)
G) C) and D)

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Question 62

Multiple Choice

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Marie owns shares of Deltona Productions preferred stock which she says provides her with a constant 14.3 percent rate of return.The stock is currently priced at $45.45 a share.What is the amount of the dividend per share?

A) $6.00
B) $6.25
C) $6.50
D) $6.60
E) $7.00

F) A) and E)
G) A) and B)

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Question 63

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-Atlas Mines has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 2.75 percent annually.The firm just paid an annual dividend of $1.67.What will the dividend be six years from now?

-What are the primary differences and similarities between NASDAQ and the NYSE?

-How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend,the dividends increase by 2.5 percent annually,and you require a 10 percent rate of return?

You are the sole shareholder of a small corporation.Presently,you wish to diversify your holdings and thus want to sell a portion of your shares but do not want to incur the costs associated with SEC filings.Which one of the following markets,if any,might be conducive to this sale?

-Galloway,Inc.has an odd dividend policy.The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $2 per share for each of the next 5 years,and then never pay another dividend.How much are you willing to pay per share today to buy this stock if you require a 15 percent return?

Winston Co.has a dividend-paying stock with a total return for the year of -6.5 percent.Which one of the following must be true?

-The next dividend payment by Hillside Markets will be $2.35 per share.The dividends are anticipated to maintain a 4.5 percent growth rate forever.The stock currently sells for $65 per share.What is the dividend yield?

Using the dividend growth model,explain why a firm would be hesitant to reduce the growth rate of its dividends.

-The common stock of Textile Mills pays an annual dividend of $1.65 a share.The company has promised to maintain a constant dividend even though economic times are tough.How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?

Hardy Lumber has a capital structure which includes bonds,preferred stock,and common stock. Which of the following rights have most likely been granted to the preferred shareholders? I.right to share in company profits prior to other shareholders II.right to elect the corporate directors III.right to vote on proposed mergers IV.right to all residual income after the common dividends have been paid

You own one share of a cumulative preferred stock which pays quarterly dividends.The firm has recently suffered some financial setbacks and has failed to pay the last two dividends.However,new funding has been arranged and the firm intends to restore all dividends,both common and preferred,this quarter.As a preferred shareholder,you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.

The Farmer's Market just paid an annual dividend of $5 on its stock.The growth rate in dividends is expected to be a constant 5 percent per year indefinitely.Investors require a 13 percent return on the stock for the first 3 years,a 9 percent return for the next 3 years,a 7 percent return thereafter.What is the current price per share?

The counter area on the floor of the NYSE where a specialist operates is called a:

-Free Motion Enterprises paid a $2.20 per share annual dividend last week.Dividends are expected to increase by 3.75 percent annually.What is one share of this stock worth to you today if your required rate of return is 15 percent?

-Sweatshirts Unlimited is downsizing.The company paid a $2.80 annual dividend last year.The company has announced plans to lower the dividend by 25 percent each year.Once the dividend amount becomes zero,the company will cease all dividends and go out of business.You have a required rate of return of 18 percent on this particular stock given the company's situation.What are your shares in this firm worth today on a per share basis?

Which one of following is the rate at which a stock's price is expected to appreciate?

Jefferson Mills just paid a dividend of $1.56 per share on its stock.The dividends are expected to grow at a constant rate of 8 percent per year,indefinitely.What will the price of this stock be in 7 years if investors require a 15 percent rate of return?