Question 1

CumChan Corporation reinvests 30 percent of its earnings in the corporation.The stock sells for $25, and the next dividend will be $1.25 per share.The discount rate is 7.5 percent.What is the rate of return on the company's reinvested funds?

Accepted Answer

The answer of CumChan Corporation reinvests 30 percent of its...

Question 2

For a firm that expects earnings next year of $10.00 per share, has a plowback ratio of 35%, a return on equity of 20%, and a required return of 15%, show the current stock value and next year's expected stock value, assuming that growth is to be constant.

Accepted Answer

The answer of For a firm that expects earnings next...

Question 3

How can an analyst be credible in stating that the value of a stock is equal to the discounted value of all future dividends when a company may pay dividends indefinitely and it is virtually impossible to predict dividends beyond some reasonable horizon?

Accepted Answer

The answer of How can an analyst be credible in...

Question 4

How does competition among investors lead to efficient markets?

Accepted Answer

The answer of How does competition among investors lead to...

Question 5

How can we claim that the Dividend Discount Model works when many actual investors may be seeking capital gains and planning to hold their shares for just a few years?

Accepted Answer

The answer of How can we claim that the Dividend...

Question 6

Lincoln and Donovan's will pay a dividend of $5 per share in year 1.It sells at $60 a share, and firms in the same industry provide an expected rate of return of 14 percent.What must be the expected growth rate of the company's dividend?

Accepted Answer

The answer of Lincoln and Donovan's will pay a dividend...

Question 7

Develop a current stock value for a firm that is expected to have extraordinary growth of 25% for four years, after which it will face more competition and slip into a constant growth rate of 5%.Its required return is 14% and next year's dividend is expected to be $5.00

Accepted Answer

The answer of Develop a current stock value for a...

Question 8

A stock offers an expected dividend of $3.50, has a required return of 14%, and has historically exhibited a growth rate of 6%.Its current price is $35.00 and shows no tendency to change.How can you explain this price based on the constant growth dividend discount model?

Accepted Answer

The answer of A stock offers an expected dividend of...

Question 9

What might be included in building a case for "appropriate" P/E ratios in the currently high stock markets?

Accepted Answer

The answer of What might be included in building a...

Question 10

Lincoln Thomas believes that the Harris Group will pay a dividend of $4 on its common stock in year 2.Thereafter, you expect dividends to grow at a rate of 12 percent a year in perpetuity.If Lincoln requires a return of 24 percent on his investment, how much should he be willing to pay for the stock?

Accepted Answer

The answer of Lincoln Thomas believes that the Harris Group...

Quiz 7: Valuing Stocks