Question 1

Using the following financial data,determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Accepted Answer

The answer of Using the following financial data,determine the maximum...

Question 2

F Minus Notes is a publicly traded company.The last dividend paid was $4 per share.Dividends are paid annually,and they are expected to increase 5 percent per year for the next five years,then increase 10 percent per year thereafter.The discount rate associated with F Minus Notes common stock is 20 percent.What should be the current price of F Minus Notes stock?

Accepted Answer

The correct answer is A because the current price of F Minus Notes stock should be $36.21. This is calculated by using the dividend discount model, which takes into account the expected future dividends and the discount rate. The expected future dividends are calculated by multiplying the last dividend paid by the expected growth rate for the next five years and then by the expected growth rate for the following years. The discount rate is used to calculate the present value of these future dividends.

Question 3

Big Joe's Burgers has a P/E ratio of 12 and a beta equal to 3.The risk-free rate is 8 percent and the return to the market has been 14 percent.The firm has an EPS of $5.00.What should be the current market price of Big Joe's stock?

Accepted Answer

The answer of Big Joe's Burgers has a P/E ratio...

Question 4

Davis Brothers Incorporated is an apparel manufacturer that paid a $1.50 dividend yesterday.Analysts expect dividends to grow at a constant 20 percent per year for the next four years.From that point forward,dividends are expected to grow at a constant rate of 12 percent forever.The discount rate for a firm of this risk is 15 percent.What should be the current stock price?

Accepted Answer

The current stock price can be calculated using the Gordon Growth Model for the period of constant growth and the present value of dividends for the initial high-growth period. Calculate the dividends for the first four years with 20% growth, then use the Gordon Growth Model to find the price at the end of year four with 12% growth. Discount all cash flows back to the present value using the 15% discount rate.

Question 5

Candy Apple Cakes' stock has a current market value of $40.50.The company just paid a dividend equal to $1.50 per share,which is expected to grow at a constant rate forever into the future.If Candy Apple's marginal investors require a rate of return equal to 12 percent,what is the rate at which dividends are expected to grow in the future?

Accepted Answer

To calculate the expected future growth rate of dividends (g), we can use the Gordon Growth Model: 
g = (r - dividend yield) or g = (r - D1/P0), where r is the required rate of return (12%), D1 is the expected dividend next year, and P0 is the current market value per share. 
We already have P0 ($40.50) and the dividend yield ($1.50/$40.50 = 3.70%). So, we can use the first equation: 
g = 12% - 3.70% = 8.30% 
Therefore, the expected rate at which dividends are expected to grow in the future is 8.30%, which is option D.

Question 6

Use the following financial data to determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Accepted Answer

The answer of Use the following financial data to determine...

Question 7

Using the following financial data,determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Accepted Answer

The answer of Using the following financial data,determine the maximum...

Question 8

What is the expected price for the stock of a company that just paid a dividend of $3.00? The company has a dividend payout ratio of 50 percent,discount rate of 25 percent,and a P/E of 10.

Accepted Answer

The expected price of the stock can be calculated using the P/E ratio and the earnings per share (EPS). Since the company paid a dividend of $3.00 and has a dividend payout ratio of 50%, the EPS is $6.00 ($3.00 / 0.50). With a P/E of 10, the expected stock price is $60.00 (10 * $6.00).

Question 9

Wheathouse Bakery just paid a dividend of $2.50.They expect the dividends to grow at 15 percent per year for next three years,and then they expect the dividends to remain constant forever.The appropriate discount rate for this firm is 20 percent.What should be the current market price of the stock?

Accepted Answer

Using the dividend growth model:

D0 = $2.50 (given) 
g = 15% 
r = 20%

First, let's calculate the dividend for the next three years:

D1 = D0 * (1 + g) = $2.50 * (1 + 0.15) = $2.88 
D2 = D1 * (1 + g) = $2.88 * (1 + 0.15) = $3.31 
D3 = D2 * (1 + g) = $3.31 * (1 + 0.15) = $3.81

Now, we can use the constant growth formula to find the present value of all future dividends beyond year 3: 
PV = D4 / (r - g)

We know that D4 is equal to D3 because dividends are expected to remain constant beyond year 3.

PV = $3.81 / (0.20 - 0.15) = $76.20

To find the present value of the first three years of dividends, we'll use the formula for the present value of an annuity:

PV = [D1 / (1 + r)] + [D2 / (1 + r)^2] + [D3 / (1 + r)^3]

PV = [$2.88 / (1 + 0.20)] + [$3.31 / (1 + 0.20)^2] + [$3.81 / (1 + 0.20)^3] 
PV = $7.03

Finally, we add the present values of the first three years of dividends and all future dividends to get the current market price of the stock:

Current market price = PV of first three years of dividends + PV of all future dividends 
Current market price = $7.03 + $76.20 
Current market price = $83.23

Therefore, the current market price of the stock is approximately $17.89 (rounded to the nearest cent).

Question 10

MTB Surfboards has a P/E of 20.The discount rate for this firm is 30 percent.They had earnings of $2,000,000 and 100,000 shares of common stock outstanding.What should be the current price of the stock?

Accepted Answer

The answer of MTB Surfboards has a P/E of 20.The...

Question 11

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is not adjusted for inflation.

Accepted Answer

Nominal GDP is the measure of a country's economic output without adjusting for inflation. It includes all the goods and services produced in the economy during a specific time period, and the value of these goods and services is calculated at current market prices. This makes it different from real GDP, which adjusts for inflation by calculating the value of goods and services in a base year's prices. Real GNP and nominal GNP are not relevant to this question as they refer to Gross National Product rather than Gross Domestic Product.

Question 12

Ace Incorporated has just paid a dividend of $4.00 per share.They have a retention ratio of 20 percent.They have a P/E ratio of 14.What should be the current price of the stock?

Accepted Answer

First, we need to calculate the earnings per share (EPS), which is the amount of earnings generated per share of outstanding stock. We can use the retention ratio to calculate this:

Retention ratio = 20%
Payout ratio = 1 - 0.20 = 0.80
Dividend per share = $4.00

EPS = Dividend per share / Payout ratio
EPS = $4.00 / 0.80
EPS = $5.00

Next, we can use the P/E ratio to calculate the stock price:

P/E ratio = Price per share / EPS
14 = Price per share / $5.00
Price per share = 14 * $5.00
Price per share = $70.00

Therefore, the current price of the stock should be $70.00 (Choice C).

Question 13

Pet Rock Quarries,Inc.is a publicly traded company with 200,000 shares of common stock outstanding.The stock currently sells for $50.00 a share.They had net income of $4,000,000.What is the company's P/E ratio?

Accepted Answer

The answer of Pet Rock Quarries,Inc.is a publicly traded company...

Question 14

Using the following financial data,determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Accepted Answer

The answer of Using the following financial data,determine the maximum...

Question 15

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is adjusted for inflation.

Accepted Answer

Real GDP is the measure of economic output that takes inflation into account, thus it gives a more accurate picture of the economy's growth over time. Nominal GDP, on the other hand, does not adjust for inflation and measures economic output using current market prices. Real GNP and nominal GNP are similar concepts as GDP, but they measure economic output of a country's citizens instead of only the production within its borders.

Question 16

Acme Corporation stock currently sells for $22.08 per share.The last dividend paid was $1.00 per share.The next dividend will be paid in one year and is expected to be $1.50;the following year's dividend will be $2.50;and,in the third year dividends are expected to begin growing at a constant rate.If the appropriate discount rate for Acme is 20 percent,at what constant rate does the market expect dividends to grow in Year 3 and beyond?

Accepted Answer

The correct answer is A because the constant growth rate is 10%.

Question 17

If the industry P/E ratio normally varies from 15 to 20,which of the following prices is most appropriate for a company that has an EPS equal to $3?

Accepted Answer

The answer of If the industry P/E ratio normally varies...

Question 18

When the Federal Reserve wants to slow down the economy that is growing at an unsustainable rate,the Federal reserve can

Accepted Answer

When the economy is growing at an unsustainable rate, the Federal Reserve can increase interest rates in order to slow down borrowing and spending. This can be done by decreasing the money supply, as less money available in the economy would make it more expensive and difficult to borrow. Therefore, the correct choice is C - increase interest rates by decreasing the money supply.

Question 19

Since its inception five years ago,Companioni Gyms has not paid a dividend to its common stockholders,and it does not expect to pay a dividend for the next five years.Beginning six years from today,however,Companioni Gyms expects to pay a $2 dividend,which,from that point on,will increase by 10 percent per year forever.Stocks with similar risks have a required rate of return equal to 15 percent.What should be the market price of Companioni's common stock?

Accepted Answer

The market price of Companioni's common stock can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model for a perpetually growing dividend). The model is P = D / (r - g), where P is the price, D is the dividend, r is the required rate of return, and g is the growth rate. In this case, the first dividend ($2) is expected 6 years from now and will grow at 10% (0.10) annually thereafter. The required rate of return is 15% (0.15). However, since the first dividend is 6 years away, we first calculate the present value of the stock at year 5 (just before the first dividend) as D1 / (r - g) = $2 / (0.15 - 0.10) = $40. This value is then discounted back to the present value using the formula PV = FV / (1 + r)^n, where FV is the future value ($40), r is the required rate of return (0.15), and n is the number of periods (5 years). Thus, the present value is $40 / (1 + 0.15)^5, which approximately equals $19.89.

Question 20

Using the following financial data,determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Accepted Answer

The answer of Using the following financial data,determine the maximum...

Quiz 17: Investment Analysis and Valuation Techniques

Using the following financial data,determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Big Joe's Burgers has a P/E ratio of 12 and a beta equal to 3.The risk-free rate is 8 percent and the return to the market has been 14 percent.The firm has an EPS of $5.00.What should be the current market price of Big Joe's stock?

Use the following financial data to determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

Using the following financial data,determine the maximum total dividends that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

What is the expected price for the stock of a company that just paid a dividend of $3.00? The company has a dividend payout ratio of 50 percent,discount rate of 25 percent,and a P/E of 10.

Wheathouse Bakery just paid a dividend of $2.50.They expect the dividends to grow at 15 percent per year for next three years,and then they expect the dividends to remain constant forever.The appropriate discount rate for this firm is 20 percent.What should be the current market price of the stock?

MTB Surfboards has a P/E of 20.The discount rate for this firm is 30 percent.They had earnings of $2,000,000 and 100,000 shares of common stock outstanding.What should be the current price of the stock?

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is not adjusted for inflation.

Ace Incorporated has just paid a dividend of $4.00 per share.They have a retention ratio of 20 percent.They have a P/E ratio of 14.What should be the current price of the stock?

Pet Rock Quarries,Inc.is a publicly traded company with 200,000 shares of common stock outstanding.The stock currently sells for $50.00 a share.They had net income of $4,000,000.What is the company's P/E ratio?

Using the following financial data,determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.

The ____ includes all the goods and services produced in the economy during a specific time where value of the goods and services is adjusted for inflation.

If the industry P/E ratio normally varies from 15 to 20,which of the following prices is most appropriate for a company that has an EPS equal to $3?

When the Federal Reserve wants to slow down the economy that is growing at an unsustainable rate,the Federal reserve can

Using the following financial data,determine the maximum dividends per share that can be paid to stockholders before the firm's value would be threatened.Base your answer on the economic value added model.