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BA 325 ? F13 ? Quiz ? Chapter 8-Chester Financial Corp had a return on equity of 18%...

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Question;BA 325 ? F13 ? Quiz ? Chapter 8 Page 1 of 4;1. Chester Financial Corp had a return on;equity of 18%. The corporation?s earnings per share was;$4.00, its dividend payout ratio was 30%;and its profit-retention rate was 70%. If these relationships;continue, what will be the Chester;Financial Corp's internal growth rate?;a. 5.4%;b. 12.6%;c. 70.0%;d. 28.0%;2. CCT, Inc. expects its current annual $3;per share common stock dividend to remain the same for the;foreseeable future. Therefore, the value of;the stock to an investor with a required return of 15% is;a. $ 4.50;b. $ 3.53;c. $20.00;d. $45.00;3. Which of the following changes will make;the value of a stock go up, other things being held;constant?;a. The required return decreases;b. The required return increases;c. In general, investors become more risk;averse;d. The growth rate of dividends decreases;4. Which of the following statements;concerning the required rate of return on stocks is true?;a. The higher an investor?s required rate;of return, the higher the value of the stock.;b. If risk is reduced, the required return;will decrease because more investors are risk-averse.;c. The required return on preferred stock;is generally higher than the required return on;common stock.;d. The higher the risk, the higher the;required return, other things being equal.;5. Butler Corp paid a dividend today of;$3.50 per share. The dividend is expected to grow at a constant;rate of 8% per year. If Butler Corp stock;is selling for $75.60 per share, the stockholders? expected;rate of return is ________.;a. 12.63%;b. 12.53%;c. 13.00%;d. 14.38% This document is a copyright;document. It is solely for the use of course roster;students in this particular course. It is;NOT for distribution outside the course;environment in any manner, for any reason;to any individual or group, past;present, or future. Redistribution or;further posting in any form is considered a;violation of the UAS Code of Conduct.;BA 325 ? F13 ? Quiz ? Chapter 8 Page 2 of 4;6. What is the value of a preferred stock;that pays a $3.50 dividend to an investor with a required rate of;return of 9% (round your answer to the;nearest $1)?;a. $39;b. $23;c. $17;d. $31.50;7. How is preferred stock affected by a;decrease in the required rate of return?;a. the value of a share of preferred stock;increases;b. the dividend increases;c. the dividend decreases;d. the dividend yield increases;8. An example of the growth factor in;common stock is ________.;a. acquiring a loan to fund an investment;in Asia;b. retaining profits in order to reinvest;into the firm;c. issuing new stock to provide capital for;future growth;d. two strong companies merging together to;increase their economy of scale;9. Linen Supply Co. paid a dividend of;$3.25 on its common stock yesterday. The company's dividends;are expected to grow at a constant rate of;5.5% indefinitely. If the required rate of return on this stock;is 17.5%, compute the current value per;share of Linen Supply Co. stock.;a. $9.14;b. $27.08;c. $28.57;d. $31.82;10. Linen Supply Co.paid a dividend of;$3.25 on its common stock yesterday. The company's dividends;are expected to grow at a constant rate of;5.5% indefinitely. The required rate of return on this stock;is 17.5%. You observe a market price of;$27.50 for the stock. Should you purchase this stock?;a. Yes, the market price is below the;intrinsic value of the stock;b. No, the market price is above the;intrinsic value of the stock;c. No, the growth rate in dividends is too;far below the required return;d. Yes, but only if you can keep the stock;for at least 5 years;11. Wallace Industries paid a dividend of;$1.85 on its common stock yesterday. The dividends of Wallace;Industries are expected to grow at 8% per;year indefinitely. If the risk free rate is 4% and investors;risk premium on this stock is 9%, estimate;the value of Wallace Industries stock 2 years from now.;a. $199.80;b. $46.61;c. $41.81;d. $38.11 This document is a copyright;document. It is solely for the use of course roster;students in this particular course. It is;NOT for distribution outside the course;environment in any manner, for any reason;to any individual or group, past;present, or future. Redistribution or;further posting in any form is considered a;violation of the UAS Code of Conduct.;BA 325 ? F13 ? Quiz ? Chapter 8 Page 3 of 4;12. How is preferred stock similar to;bonds?;a. Dividend payments to preferred;shareholders (much like bond interest payments to;bondholders) are tax deductible.;b. Investors can sue the firm if preferred;dividend payments are not paid (much like;bondholders can sue for non-payment of;interest payments).;c. Preferred stockholders receive a;dividend payment (much like interest payments to;bondholders) that is usually fixed.;d. Preferred stock is not like bonds in any;way.;13. How is preferred stock similar to;common stock?;a. Preferred dividend payments usually have;unlimited growth potential.;b. Investors cannot sue a corporation for;the non-payment of dividends.;c. Both preferred and common stockholders;have voting control of a firm.;d. Preferred stock dividends and common;stock dividends are fixed.;14. Assume that a firm had such serious;financial problems that it was about to be liquidated after a;bankruptcy. All of the firm's assets are;about to be sold in order to pay the following claims against;the firm: bondholders, preferred;stockholders, common stockholders, and federal income taxes. Of;the claims mentioned, what priority would;common stockholders have?;a. first;b. second;c. third;d. fourth;15. Who bears the greatest risk of loss of;value if a firm should fail?;a. bondholders;b. preferred stockholders;c. common stockholders;d. all of the above;16. Modem Development, Inc. paid a dividend;of $5.00 per share on its common stock yesterday.;Dividends are expected to grow at a;constant rate of 4% for the next two years, at which point the;stock is expected to sell for $56.00. If;investors require a rate of return on Modem?s common stock of;18%, what should the stock sell for today?;a. $50.22;b. $48.51;c. $44.76;d. $40.22 This document is a copyright;document. It is solely for the use of course roster;students in this particular course. It is;NOT for distribution outside the course;environment in any manner, for any reason;to any individual or group, past;present, or future. Redistribution or;further posting in any form is considered a;violation of the UAS Code of Conduct.;BA 325 ? F13 ? Quiz ? Chapter 8 Page 4 of 4;17. Creamy Custard common stock is;currently selling for $75.00. It just paid a dividend of $3.65 and;dividends are expected to grow at a rate of;6% indefinitely. What is the required rate of return on;Creamy Custard?s stock?;a. 10.87%;b. 11.16%;c. 12.21%;d. 13.26%;18. You observe Golden Flashes Common Stock;selling for $40.00 per share. The next dividend is;expected to be $4.00, and is expected to;grow at a 5% annual rate forever. If your required rate of;return is 12%, should you purchase the;stock?;a. yes, because the present value of the;expected future cash flows is greater than $40;b. no, because the present value of the;expected future cash flows is less than $40;c. yes, because the present value of the;expected future cash flows is less than $40;d. no, because the present value of the;expected future cash flows is greater than $40;19. Using the free cash flow method of;valuation, an analyst determines the value of Company A?s stock;to be $10 and the value of Company B?s;stock to be $14. Based on this information, which of the;following statements is most accurate?;a. Using the dividend valuation model, the;value of company A's stock will be lower than the;value of Company B?s stock.;b. Other things being equal, if Company A;and Company B have the same firm value, Company;B must have more debt, thus leveraging its;returns for the benefit of shareholders.;c. Other things being equal, if Company A;and Company B have the same firm value, Company;A may have more shares of stock outstanding;than Company B.;d. Company B?s required rate of return is;higher than Company A's required return.;20. Greenland Airlines has net income of $1;million this year. The book value of Greenland Airlines;common equity is $5 million dollars. The;company's dividend payout ratio is 70% and is expected to;remain this way. What is Greenland;Airlines' internal growth rate?;a. 6%;b. 9%;c. 14%;d. 15%

 

Paper#47512 | Written in 18-Jul-2015

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