Question 1

Based on the DDM, if the required return on a stock increases, what will happen to the stock's price?

Accepted Answer

According to the Dividend Discount Model (DDM), the price of a stock is inversely related to the required rate of return. Therefore, if the required return on a stock increases, the stock's price will decrease.

Question 2

Based on the DDM, if the dividend growth rate increases, what will happen to the stock's price?

Accepted Answer

According to the Dividend Discount Model (DDM), the price of a stock is the present value of all its future dividends. If the dividend growth rate increases, future dividends are expected to be higher, which increases the present value of these dividends and thus increases the stock's price.

Question 3

Which of the following items is not a characteristic of a common stock?

Accepted Answer

Common stock does not give the owner priority if the firm files for bankruptcy. In the event of bankruptcy, common stockholders are among the last to be paid, after creditors, bondholders, and preferred stockholders.

Question 4

Which of the following items is not used in calculating the value of a stock?

Accepted Answer

The answer of Which of the following items is not...

Question 5

Under which of the following circumstances can you not use the DDM to value a stock?

Accepted Answer

The answer of Under which of the following circumstances can...

Question 6

Which of the following items is a characteristic of preferred stock?

Accepted Answer

Preferred stock gives the owner priority if the firm files for bankruptcy.

Question 7

Garner Electronics pays a preferred dividend of $7.50. If the required return on Garner's preferred stock is 6.00%, what is the price of Garner's preferred stock?

Accepted Answer

The answer of Garner Electronics pays a preferred dividend of...

Question 8

Edwards International's preferred stock sells for $70 per share. If the required return on Edwards' preferred stock is 7.50%, how much is Edwards' preferred dividend?

Accepted Answer

The answer of Edwards International's preferred stock sells for $70...

Question 9

Burkhead Sales just paid an annual dividend of $0.70, and the dividend is expected to grow at a constant rate of 7.00% in the future. If the required return on Burkhead's stock is 10.50%, what is the intrinsic price of the shares?

Accepted Answer

The answer of Burkhead Sales just paid an annual dividend...

Question 10

Anthony Inc.'s common stock is currently selling for $20.00 per share. Their most recent annual dividend was $0.60, and the dividend is expected to grow at the rate of 10% annually in the future. What is the required return on Anthony's common equity?

Accepted Answer

The answer of Anthony Inc.'s common stock is currently selling...

Question 11

Fester Industries' common stock is currently selling for $30.00 per share. Next year's dividend (D₁) is expected to be $1.26. If the required return on Fester's common stock is 9.20%, what was the most recent dividend that Fester paid (D₀)?

Accepted Answer

The answer of Fester Industries' common stock is currently selling...

Question 12

Gerard Consolidated's last annual dividend was $1.40. The dividend is expected to grow by 20% this year, 16% next year, 12% the year after next and 8% from the following year forward. If the required return on Gerard's common stock is 13.50%, what is the intrinsic value of Gerard's common stock?

Accepted Answer

The answer of Gerard Consolidated's last annual dividend was $1.40....

Question 13

Allyson Enterprises just lost a big lawsuit. Their most recent dividend was $0.88, and that dividend is expected to grow by 2% in year 1, 4% in year 2, 5% in year 3 and 6% in year 4 and beyond. If the required return on Allyson's common stock is 10.50%, what is the intrinsic value of the stock?

Accepted Answer

The answer of Allyson Enterprises just lost a big lawsuit....

Question 14

One year ago today you bought 600 shares of Mullen Manufacturing's common stock for $42.50 per share. During the past year you received two quarterly dividends of $0.35 each and two quarterly dividends of $0.38 each. Today the stock's market price is $44.20. Calculate the dividend yield, capital gains yield and total yield on the stock for the past year.

Accepted Answer

The answer of One year ago today you bought 600...

Question 15

Use the following data to answer questions below
Gaspar International does not pay a common dividend. Gaspar's FCF for 2015 was $20.0 million, for 2016 it was $21.0 million, for 2017 it was $22.05 million and for 2018 it was $23.1525 million. Gaspar's WACC is known to be 9.50%. Gaspar's balance sheet includes $26.4 million in marketable securities and $130.0 million in non-operating long-term assets. The firm currently carries $44.0 million in short-term debt, $160.0 million in long-term debt and $22.0 million in preferred equity. There are currently 10 million shares of Gaspar's common stock outstanding.
-Use the FCF data above to estimate the growth rate for Gaspar's free cash flows.

Accepted Answer