49) DC Motors recently paid $1.10 as its annual dividend. Future dividends are projected at
$1.06, $1.02, and $1.00 over the next three years, respectively. After that, the dividend is
expected to decrease by 2 percent annually. What is one share of this stock worth at a rate of
return of 17 percent?
A) $5.62
B) $5.50
C) $5.21
D) $5.33
E) $5.98
50) Ancient Industries just paid a dividend of $1.03 a share. The company announced today that
it expects to pay $.90 a share next year and a final liquidating dividend of $18.44 in two years.
What is one share of this stock worth today if the required rate of return is 16 percent?
A) $14.94
B) $14.48
C) $13.23
D) $13.44
E) $13.60
51) A company plans to pay an annual dividend of $.30 a share for two years commencing two
years from today. After that time, a constant $1 a share annual dividend is planned indefinitely.
Given a required return of 14 percent, what is the current value of this stock?
A) $4.82
B) $5.25
C) $5.39
D) $5.46
E) $5.58
52) The Elder Co. is in downsizing mode. The company paid an annual dividend of $2.50 last
year. The company has announced plans to lower the dividend by $.50 a year. Once the dividend
amount becomes zero, the company will cease all dividends permanently. The required rate of
return is 14.5 percent. What is one share of this stock worth?
A) $3.85
B) $3.48
C) $4.87
D) $4.13
E) $4.39
53) M&D Enterprises paid its first annual dividend yesterday in the amount of $.28 a share. The
company plans to double each annual dividend payment for the next three years. After that time,
it plans to pay a constant $2.25 per share indefinitely. What is one share of this stock worth today
if the market rate of return on similar securities is 11.5 percent?
A) $19.41
B) $18.40
C) $17.46
D) $16.93
E) $17.13
54) BC ‘n D just paid its annual dividend of $.60 a share. The projected dividends for the next
five years are $.30, $.50, $.75, $1.00, and $1.20, respectively. After that time, the dividends will
be held constant at $1.40 per share. What is this stock worth today at a discount rate of 14
percent?
A) $7.56
B) $10.60
C) $8.02
D) $9.28
E) $9.43
55) JK Inc. is a very cyclical type of business which is reflected in its dividend policy. The firm
pays a dividend of $2.00 a share every other year with the last payment having just been paid.
Five years from now, the company is repurchasing all of the outstanding shares at a price of $50
a share. What is the current value of one share at a discount rate of 12 percent?
A) $34.03
B) $31.24
C) $33.78
D) $27.89
E) $34.99
56) Yesterday, Railway Tours paid its annual dividend of $1.20 per share. The company has
been reducing the dividends by 10 percent each year. What is the value of this stock at a discount
rate of 13 percent?
A) $4.70
B) $3.71
C) $8.31
D) $36.00
E) $27.00
57) Nu-Tech is expecting a period of intense growth and has decided to reduce its annual
dividend by 10 percent a year for the next two years. After that, it will maintain a constant
dividend of $.70 a share. The company just paid $1.80 per share. What is the value of this stock
if the required rate of return is 13 percent?
A) $6.99
B) $6.79
C) $8.22
D) $8.87
E) $7.62
58) What would be the maximum an investor should pay for the common stock of a firm that has
no growth opportunities but pays a dividend of $1.36 per year? The required rate of return is 12.5
percent.
A) $9.52
B) $10.88
C) $11.24
D) $10.64
E) $11.47
59) The Felix Corp. will pay an annual dividend of $1.00 next year. The dividend will increase
by 12 percent a year for the following two years before growing at 4 percent indefinitely
thereafter. If the required rate of return is 10 percent, what is the stock’s current value?
A) $13.38
B) $14.05
C) $19.11
D) $9.80
E) $10.38
60) A company just paid an annual dividend of $.40 a share and plans to increase the dividend by
7 percent a year for the next 6 years and then increase it by 4 percent annually thereafter. What is
the value of this stock at the end of Year 6 if the discount rate is 11 percent?
A) $10.63
B) $8.92
C) $9.68
D) $10.21
E) $9.37
61) Wilbert’s Clothing Stores just paid an annual dividend of $1.20 and increases its dividend by
2.5 percent annually. You would like to purchase 100 shares of stock in this firm but realize that
you will not have the funds to do so for another three years. If you desire a rate of return of 10
percent, how much should you expect to pay for 100 shares when you can afford to buy this
stock? Ignore trading costs.
A) $1,640
B) $1,681
C) $1,723
D) $1,766
E) $1,810
62) Uptown Clothing just paid $1.50 as its annual dividend and increases its dividend by 2.5
percent each year. What will Uptown’s stock price be in ten years at a discount rate of 12.25
percent?
A) $19.46
B) $22.08
C) $20.19
D) $19.70
E) $21.50
63) Merriweather’s has a policy of increasing its annual dividend by 1.75 percent each year. How
much will one share be worth five years from now if the required rate of return is 15 percent and
the next dividend will be $3.40?
A) $28.48
B) $27.99
C) $34.84
D) $28.60
E) $32.78
64) A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield of
this stock is 9 percent, what is the dividend amount?
A) $1.40
B) $1.80
C) $2.20
D) $2.40
E) $2.80
65) The common stock of Fine China sells for $38.42 a share. The stock is expected to pay an
annual dividend of $1.80 next year and increase that amount by 4 percent annually thereafter.
What is the market rate of return on this stock?
A) 9.04 percent
B) 9.13 percent
C) 8.69 percent
D) 9.22 percent
E) 8.36 percent
66) Logistics just paid an annual dividend of $2.20 and announced that all future dividends
would be $2.25 a share indefinitely. What is your required rate of return if you are willing to pay
$15.25 a share for this stock?
A) 14.75 percent
B) 16.07 percent
C) 13.88 percent
D) 13.67 percent
E) 14.50 percent
67) Martha’s recently paid an annual dividend of $3.60 on its common stock. This dividend
increases by 2.5 percent per year. What is the market rate of return if the stock is selling for
$32.65 a share?
A) 12.57 percent
B) 13.45 percent
C) 15.55 percent
D) 16.05 percent
E) 13.80 percent
68) Bikes and More just announced its next annual dividend will be $2.42 a share and all future
dividends will increase by 2.5 percent annually. What is the market rate of return if this stock is
currently selling for $22 a share?
A) 13.62 percent
B) 13.84 percent
C) 13.58 percent
D) 13.50 percent
E) 13.46 percent
69) Shares of the Samson Co. offer an expected total return of 12 percent. The dividend is
increasing at a constant 3.25 percent per year. What is the value of the next dividend if the stock
is selling at $28 a share?
A) $2.50
B) $2.45
C) $2.78
D) $2.34
E) $2.10
70) A stock had a total return of 9.62 percent last year. The dividend amount was $.70 a share
which equated to a dividend yield of 2.39 percent. What is the dividend growth rate?
A) 7.06 percent
B) 4.03 percent
C) 7.23 percent
D) 5.48 percent
E) 2.48 percent
71) Lory Company had net earnings of $127,000 this past year of which $46,200 was paid out in
dividends. The company’s equity was $1,587,500. Lory has 200,000 shares outstanding with a
current market price of $11.63 per share. Both the number of shares and the dividend payout
ratio are constant. What is the required rate of return if the growth rate is 5.6 percent?
A) 8.42 percent
B) 6.67 percent
C) 7.70 percent
D) 7.39 percent
E) 8.24 percent
72) Engine Builders stock sells for $24.20 a share. The firm just paid an annual dividend of $2
per share and has a long-established record of increasing its dividend by a constant 2.5 percent
annually. What is the market rate of return on this stock?
A) 10.97 percent
B) 14.41 percent
C) 10.70 percent
D) 12.34 percent
E) 11.46 percent
73) Dexter’s has a fixed dividend payout ratio of 40 percent, current net income of $5,200, total
assets of $56,400, and total equity of $21,600. Given this information, what estimate would you
use as the dividend growth rate if the last dividend paid was $.464 per share?
A) 9.63 percent
B) 3.69 percent
C) 12.84 percent
D) 8.61 percent
E) 14.44 percent
74) The dividend yield on Alpha’s common stock is 5.2 percent. The company just paid a $2.10
dividend. The rumour is that the dividend will be $2.30 next year. The dividend growth rate is
expected to remain constant at the current level. What is the required rate of return on Alpha’s
stock?
A) 14.72 percent
B) 12.31 percent
C) 18.29 percent
D) 20.01 percent
E) 24.21 percent
75) Lester’s has a return on equity of 11.6 percent, a profit margin of 6.2 percent, and a payout
ratio of 35 percent. What is the firm’s growth rate?
A) 13.74 percent
B) 7.54 percent
C) 11.09 percent
D) 8.77 percent
E) 9.71 percent
76) Rudy’s stock is currently valued at $28.40 a share. The firm had earnings per share of $1.86
last year and projects earnings of $2.09 a share for next year. What is the trailing twelve month
price-earnings ratio?
A) 13.59
B) 14.38
C) 12.84
D) 16.67
E) 15.27
77) L&R’s stock is currently valued at $32.70 a share. The firm had earnings per share of $1.88
last year and projects earnings of $2.10 a share for next year. What is the forward price-earnings
ratio?
A) 15.57
B) 14.38
C) 17.39
D) 16.43
E) 15.06
78) Russell’s has annual revenue of $387,000 with costs of $216,400. Depreciation is $48,900
and the tax rate is 21 percent. The firm has debt outstanding with a market value of $182,000
along with 9,500 shares of stock that is selling at $67 a share. The firm has $48,000 of cash of
which $29,500 is needed to run the business. What is the firm’s EV/EBITDA ratio?
A) 5.57
B) 4.69
C) 3.39
D) 3.93
E) 6.20
79) Kurt’s Interiors has annual revenue of $506,000 with costs of $369,400. Depreciation is
$64,900 and the tax rate is 21 percent. The firm has debt outstanding with a market value of
$240,000 along with 7,500 shares of stock that is valued at $87 a share. The firm has $51,200 of
cash, all of which is needed to run the business. What is the firm’s EV/EBITDA ratio?
A) 6.37
B) 6.53
C) 5.39
D) 6.15
E) 6.28
80) Jaxon’s has total revenue of $418,300, earnings before interest and taxes of $102,600,
depreciation of $59,200, and a tax rate of 21 percent. The firm is all-equity financed with 15,000
shares outstanding at a book value of $38.03 a share and a price-to-book ratio of 3.2. What is the
firm’s EV/EBITDA ratio if the firm has excess cash of $49,300?
A) 9.67
B) 11.28
C) 8.39
D) 9.15
E) 10.98
81) Allison’s is expected to have annual free cash flow of $62,000, $65,400, and $68,900 for the
next three years, respectively. After that, the free cash flow is expected to increase at a constant
rate of 2 percent per year. At a discount rate of 14.5 percent, what is the present value of this
firm?
A) $469,118
B) $603,509
C) $577,088
D) $524,467
E) $497,364
82) Danielsen’s has 15,000 shares of stock outstanding and projected annual free cash flows of
$48,200, $57,900, $71,300, and $72,500 for the next four years, respectively. After that, the cash
flows are expected to increase at a constant annual rate of 1.6 percent. What is the current value
per share of stock at a discount rate of 15.4 percent?
A) $31.57
B) $29.06
C) $28.99
D) $26.14
E) $34.08
83) A number of publicly traded firms pay no dividends yet investors are willing to buy shares in
these firms. How is this possible? Does this violate our basic principle of stock valuation?
Explain.
84) What are the components of the required rate of return on a share of stock? Briefly explain
each component.
85) Explain whether it is easier to find the required return on a publicly traded stock or a publicly
traded bond, and explain why.
86) What is the difference between the EV/EBITDA ratio and the PE ratio?
87) Explain the differences between a market order, a limit order, and a stop order.