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Question;99. Using the dividend growth model, explain why a;firm would be hesitant to reduce the growth rate of its dividends.;100. Kelley wants to purchase shares in Classic Kars;Inc., but is torn between buying shares of common stock or shares of preferred;stock. What should he consider before determining the type of share he should;purchase?;101. Explain why small shareholders should prefer;cumulative voting over straight voting.;102. Ted, a wealthy individual, plans to purchase 30;percent of a firm's Class A shares of outstanding stock. He believes that such;a purchase will allow him to control the firm by electing his candidates to the;board over time as current board member's terms expire. The firm has a;cumulative voting process. What factors should Ted be considering and why to;ensure he can gain the control he desires?;103. Explain the primary change that occurred in the;structure of the NYSE in 2006 and how that change affected the exchange;members.;Multiple Choice Questions;104. 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?;A. $28.18;B. $32.04;C. $37.46;D. $41.25;E. $43.33;106. The Stiller Corporation will pay a $3.80 per;share dividend next year. The company pledges to increase its dividend by 2.4;percent indefinitely. How much are you willing to pay to purchase this;company's stock today if you require a 6.9 percent return on your;investment?;A. $55.07;B. $63.09;C. $72.22;D. $78.47;E. $84.44;105. 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 $70 per share. What;is the dividend yield?;A. 3.20 percent;B. 3.36 percent;C. 3.54 percent;D. 4.50 percent;E. 4.81 percent;107. Suppose you know a company's stock currently;sells for $90 per share and the required return on the stock is 10 percent. You;also know that the total return on the stock is evenly divided between a;capital gains yield and a dividend yield. What is the current dividend if it's;the company's policy to always maintain a constant growth rate in its;dividends?;A. $4.18B. $4.29;C. $4.37;D. $4.50;E. $4.64;108. Whistle Stop Trains pays a constant $16 dividend;on its stock. The company will maintain this dividend for the next 14 years and;will then cease paying dividends forever. What is the current price per share;if the required return on this stock is 15 percent?;A. $77.78;B. $82.48;C. $91.59;D. $106.67;E. $112.00;109. Morristown Industries has an issue of preferred;stock outstanding that pays a $13.25 dividend every year in perpetuity. What is;the required return if this issue currently sells for $80 per share?;A. 16.56 percent;B. 16.72 percent;C. 16.80 percent;D. 16.86 percent;E. 16.95 percent;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?;A. $212.40;B. $220.54;C. $223.09;D. $226.84;E. $227.50;111. Springboro Tech is a young start-up company. No;dividends will be paid on the stock over the next 15 years, because the firm;needs to plow back its earnings to fuel growth. The company will pay a $12 per;share dividend in 16 years and will increase the dividend by 3 percent per year;thereafter. What is the current share price if the required return on this;stock is 8 percent?;A. $75.66;B. $88.19;C. $120.00;D. $164.59;E. $240.00;112. 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?;A. $27.08;B. $34.15;C. $41.72;D. $42.60;E. $43.33;113. Jen's Fashions is growing quickly. Dividends are;expected to grow at a 22 percent rate for the next 3 years, with the growth;rate falling off to a constant 8 percent thereafter. The required return is 12;percent and the company just paid a $3.80 annual dividend. What is the current;share price?;A. $128.96;B. $131.11;C. $146.17;D. $148.87;E. $152.20;114. Hardwoods, Inc. is a mature manufacturing firm.;The company just paid a $10 dividend, but management expects to reduce the;payout by 9 percent each year, indefinitely. How much are you willing to pay;today per share to buy this stock if you require a 15 percent rate of;return?;A. $34.79;B. $37.92;C. $38.27;D. $41.33;E. $42.09;115. Bechtel Machinery stock currently sells for $50;per share. The market requires a 15 percent return on the firm's stock. The;company maintains a constant 8 percent growth rate in dividends. What was the;most recent annual dividend per share paid on this stock?;A. $3.00;B. $3.24;C. $3.50;D. $3.67;E. $3.91;116. Southern Utilities just issued some new preferred;stock. The issue will pay a $19 annual dividend in perpetuity beginning 9 years;from now. What is one share of this stock worth today if the market requires a;7 percent return on this investment?;A. $157.97;B. $164.16;C. $189.08;D. $241.41;E. $271.43;117. Big Falls Tours just paid a dividend of $1.55 per;share. The dividends are expected to grow at 30 percent for the next 8 years;and then level off to a 7 percent growth rate indefinitely. What is the price;of this stock today given a required return of 15 percent?;A. $67.54;B. $69.90;C. $72.47;D. $77.67;E. $78.19;118. Harvey County Choppers, Inc. is experiencing;rapid growth. The company expects dividends to grow at 25 percent per year for;the next 7 years before leveling off to 7 percent into perpetuity. The required;return on the stock is 12 percent. What is the current stock price if the;annual dividend share that was just paid was $1.05?;A. $60.15;B. $64.36;C. $67.37;D. $72.11;E. $75.19;119. Westover Winds just paid a dividend of $2.50 per;share. The company will increase its dividend by 8 percent next year and will;then reduce its dividend growth rate by 2 percentage points per year until it;reaches the industry average of 2 percent dividend growth, after which the;company will keep a constant growth rate forever. What is the price of this;stock today given a required return of 12 percent?;A. $28.42;B. $28.99;C. $31.83;D. $32.06;E. $32.47;57. What is the net present value of a project with;the following cash flows if the required rate of return is 12 percent?;58. What is the net present value of a project that;has an initial cash outflow of $34,900 and the following cash inflows? The;required return is 15.35 percent.;59. A project will produce cash inflows of $3,200 a year for 4 years;with a final cash inflow of $5,700 in year 5. The project's initial cost is;$9,500. What is the net present value of this project if the required rate of;return is 16 percent?;A. -$311.02;B. $2,168.02;C. $4,650.11;D. $9,188.98;E. $21,168.02;60. You are considering the following two mutually;exclusive projects. The required rate of return is 14.6 percent for project A;and 13.8 percent for project B. Which project should you accept and why?;A. project A, because it has the higher required rate of return;B. project A, because its NPV is about $4,900 more than the NPV of project;B;C. project B, because it has the largest total cash inflow;D. project B, because it has the largest cash inflow in year one;E. project B, because it has the lower required return;61. You are considering two mutually exclusive;projects with the following cash flows. Which project(s) should you accept if;the discount rate is 8.5 percent? What if the discount rate is 13 percent?;A. accept project A as it always has the higher NPV;B. accept project B as it always has the higher NPV;C. accept A at 8.5 percent and B at 13 percent;D. accept B at 8.5 percent and A at 13 percent;E. accept B at 8.5 percent and neither at 13 percent;62. Day Interiors is considering a project with the;following cash flows. What is the IRR of this project?;A. 6.42 percent;B. 7.03 percent;C. 7.48 percent;D. 8.22 percent;E. 8.56 percent;63. An investment has the following cash flows and a;required return of 13 percent. Based on IRR, should this project be accepted?;Why or why not?;A. No, The IRR exceeds the required return by about 0.06 percent.;B. No, The IRR is less than the required return by about 0.94 percent.;C. Yes, The IRR exceeds the required return by about 0.06 percent.;D. Yes, The IRR exceeds the required return by about 0.94 percent.;E. Yes, The IRR is less than the required return by about 0.06 percent.;64. You are considering two independent projects with;the following cash flows. The required return for both projects is 16 percent.;Given this information, which one of the following statements is correct?;A. You should accept Project A and reject Project B based on their;respective NPVs.;B. You should accept Project B and reject Project A based on their;respective NPVs.;C. You should accept Project A and reject Project B based on their;respective IRRs.;D. You should accept Project B and reject Project A based on their;respective IRRs.;E. You should accept both projects based on both the NPV and IRR decision;rules.

 

Paper#51097 | Written in 18-Jul-2015

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