82) Newcomer Mills is a relatively new firm which will retain all of its earnings for the next four
years. Four years from now, the firm expects to pay its first dividend of $0.25 a share. After that,
it intends to increase the dividend by 4 percent annually. What is the value of this stock today at
a discount rate of 12 percent?
A) $1.53
B) $1.78
C) $2.04
D) $2.22
E) $2.60
83) Best Value Outlet recently announced that it intends to pay dividends of $0.40, $0.60, $0.75,
and $1.00 per share over the next four years, respectively. After that, the plan is to increase the
dividend by 3.5 percent annually. What is the current value of this stock if the applicable
discount rate is 13.5 percent?
A) $6.44
B) $7.83
C) $8.17
D) $9.55
E) $13.10
84) Quality Home Made Ice Cream has plans to pay decreasing annual dividends of $1.60,
$1.50, and $1.35 over the next three years, respectively. After that, the firm will increase the
dividend by 5 percent each year. What is the value of this stock today at a discount rate of 11
percent?
A) $19.26
B) $19.54
C) $19.69
D) $19.93
E) $20.92
85) The Shoe Box will not pay a dividend for the next two years. The following two years, it will
pay annual dividends of $1 per share. Starting in year 5, the dividends will increase by 4 percent
annually. The discount rate is 8 percent. What is the value of this stock today?
A) $18.18
B) $20.64
C) $22.63
D) $24.08
E) $27.09
86) The current book value per share of B.L. Black & Sons is $5.35 and the required return on
the stock is 15.5 percent. The firm expects earnings per share of $2.25 next year with annual
earnings growth of 4.5 percent. What is the current market value of this stock?
A) $9.16
B) $10.91
C) $13.88
D) $18.27
E) $20.30
87) The Diamond Outlet has current earnings per share of $2.20 and an expected earnings
growth rate of 2.3 percent. The required return on the stock is 14 percent and the current book
value per share is $15.25. What is the current market value of this stock?
A) $15.07
B) $15.62
C) $15.96
D) $16.24
E) $16.67
88) Leslie Apparel has a current book value per share of $5.15 and current earnings per share of
$1.13. The required return is 14 percent and the expected earnings growth rate is 4.5 percent.
What is one share of this stock worth today?
A) $7.44
B) $8.77
C) $9.99
D) $10.65
E) $11.13
89) A firm has a current book value per share of $21.10 and a market price per share of $37.57.
Next year’s earnings are expected to be $5.60 per share and the expected earnings growth rate is
2.5 percent. What is the required rate of return on this stock?
A) 14 percent
B) 15 percent
C) 16 percent
D) 17 percent
E) 18 percent
90) Lambert Corporation reported net income of $60 million for last year. Depreciation expense
totaled $20 million and capital expenditures came to $5 million. Free cash flow is expected to
grow at a rate of 4.5% for the foreseeable future. Lambert faces a 40% tax rate and has a 0.45
debt to equity ratio with $255 million (market value) in debt outstanding. Lambert’s equity beta
is 1.30, the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%.
What is the current total value of Lambert’s equity (in millions)?
A) $655.90
B) $731.20
C) $840.61
D) $951.26
E) $1,025.95
91) Beach & Company reported net income of $40 million for last year. Depreciation expense
totaled $18 million and capital expenditures came to $8 million. Free cash flow is expected to
grow at a rate of 5% for the foreseeable future. Beach faces a 40% tax rate and has a 0.50 debt to
equity ratio with $200 million (market value) in debt outstanding. Beach’s equity beta is 1.25, the
risk-free rate is currently 4.5% and the market risk premium is estimated to be 8%. What is the
current total value of Beach & Company (in millions)?
A) $655.90
B) $730.18
C) $840.95
D) $919.46
E) $1,025.95
92) McKenzie, Inc. reported net income of $8.5 million for last year. Depreciation expense
totaled $5 million and capital expenditures came to $2 million. Free cash flow is expected to
grow at a rate of 2.5% for the foreseeable future. McKenzie faces a 40% tax rate and has a 0.50
debt to equity ratio with $20 million (market value) in debt outstanding. McKenzie’s equity beta
is 1.4, the risk- free rate is currently 5% and the market risk premium is estimated to be 7.5%.
McKenzie has 10 million shares of common stock outstanding. What is the current value of a
share of McKenzie stock?
A) $6.62
B) $7.32
C) $8.45
D) $9.12
E) $10.25
93) Standard, Inc. reported net income of $35 million for last year. Depreciation expense totaled
$20 million and capital expenditures came to $7 million. Free cash flow is expected to grow at a
rate of 6% for the foreseeable future. Stuart faces a 40% tax rate and has a 0.40 debt to equity
ratio with $120 million (market value) in debt outstanding. Standard’s equity beta is 1.25, the
risk-free rate is currently 5% and the market risk premium is estimated to be 7.5%. What is the
current value (in millions) of Standard’s equity?
A) $237.34
B) $352.42
C) $427.42
D) $556.79
E) $655.55
94) A firm has net income of $198,500 and total equity of 1.15 million. There are 220,000 shares
of stock outstanding at a price per share of $14.80. What is the firm’s price-earnings ratio?
A) 16.21
B) 16.40
C) 17.09
D) 17.28
E) 17.94
95) L.B. Jay has net income of $38,000, total assets of $437,000, total liabilities of $208,000, and
a price-book ratio of 3.8. There are 60,000 shares of stock outstanding. What is the firm’s price-
earnings ratio?
A) 18.72
B) 19.11
C) 19.28
D) 20.80
E) 22.90
96) Miller’s Farm has 120,000 shares of stock outstanding, sales of $850,000, and net income of
$55,000. Financial analysts believe the price-earnings ratio for this firm should be 15.8. Given
this information, what should be the current stock price?
A) $7.24
B) $8.87
C) $14.85
D) $14.57
E) $15.21
97) Electronics Galore has historically had a P/E ratio of 22.1. This ratio is considered a good
estimate of the future ratio. The firm currently has EPS of $1.78. These earnings are expected to
increase by 5.0 percent next year. What is the expected price of this stock one year from now?
A) $39.31
B) $40.96
C) $41.30
D) $42.78
E) $43.79
98) Historically, Jones Trucking has had a P/E ratio of 14.6. The firm has current net income of
$92,000 with 85,000 shares of stock outstanding. The EPS growth rate is 4.5 percent. What is the
expected price of this stock one year from now?
A) $15.32
B) $15.85
C) $16.41
D) $16.51
E) $17.10
99) The Retail Box has a historical P/CF ratio of 21.5. The current CFPS is $1.42 and the
projected CFPS growth rate is 5.6 percent. The current EPS is $1.02. What is the expected price
of this stock one year from now?
A) $30.53
B) $32.24
C) $32.88
D) $34.11
E) $34.20
100) The Satellite Shoppe has current sales per share of $10.55. The sales per share are expected
to increase at an annual rate of 12 percent. The historical P/E ratio is 16.2 and the historical P/S
ratio is 9.8. What is the expected price of this stock one year from now?
A) $59.72
B) $66.67
C) $71.50
D) $115.80
E) $129.00
101) Currently, Southern Foods has sales of $1.32 million, net profit of $521,400, and 125,000
shares of stock outstanding. The sales and net profit are each expected to grow by 6 percent
annually. The historical P/S ratio is 7.8. What is the expected price of this stock one year from
now?
A) $32.54
B) $34.49
C) $82.37
D) $85.15
E) $87.31
102) Cayman Boats plans to pay a $1.75 a share dividend at the end of each of the next 2 years.
At the end of year 3, it will pay a final liquidating dividend of $25 a share. After that, the
company plans to close its doors permanently. What is the current value of this stock at a
discount rate of 10 percent?
A) $19.89
B) $20.26
C) $21.82
D) $23.80
E) $24.50
103) The Boston House increases its dividend each year. The next annual dividend is expected to
be $2.25 a share. Future dividends will increase by 5.0 percent annually. What is the current
value of this stock if the discount rate is 13 percent?
A) $28.91
B) $28.13
C) $28.78
D) $29.00
E) $29.17
104) CB Industries stock is valued at $16.80 a share. The firm pays annual dividends at an
increasing rate of 4.5 percent annually. Next year’s dividend will be $1.90 per share. What is the
required return on this stock?
A) 11.03 percent
B) 12.50 percent
C) 13.62 percent
D) 14.00 percent
E) 15.81 percent
105) A firm has paid annual dividends of $1.41, $1.43, $1.55, $1.62, $1.64, and $1.68 per share
over the past 6 years, respectively. What is the geometric average growth rate for these
dividends?
A) 3.19 percent
B) 3.28 percent
C) 3.48 percent
D) 3.57 percent
E) 3.74 percent
106) Bait ‘n Tackle started paying dividends 4 years ago. The annual dividends thus far have
been $0.50, $0.55, $0.60, and $0.65, respectively. What is the arithmetic average dividend
growth rate?
A) 6.33 percent
B) 8.58 percent
C) 9.14 percent
D) 10.80 percent
E) 11.13 percent
107) Canadian Adventures has earnings per share of $2.86 and dividends per share of $1.80. The
total equity of the firm is $750,000. There are 38,000 shares of stock outstanding. What is the
sustainable rate of growth?
A) 2.14 percent
B) 3.31 percent
C) 4.94 percent
D) 5.37 percent
E) 6.59 percent
108) Georgia Nursery is a relatively young firm which just paid its first annual dividend of $0.50
a share. Management projects dividend increases of 15 percent per year for five years followed
by a constant growth rate of 5.0 percent annually. What is this stock worth today if the applicable
discount rate is 10 percent?
A) $13.59
B) $14.66
C) $15.98
D) $16.16
E) $16.51
109) Comfort Ice Cream has plans to pay decreasing annual dividends of $1.75, $1.60, and $1.45
over the next three years, respectively. After that, the firm will increase the dividend by 4 percent
each year. What is the value of this stock today at a discount rate of 12 percent?
A) $17.29
B) $17.54
C) $17.69
D) $17.93
E) $18.92
110) Lansing Corporation reported net income of $65 million for last year. Depreciation expense
totaled $15 million and capital expenditures came to $6 million. Free cash flow is expected to
grow at a rate of 4.5% for the foreseeable future. Lansing faces a 40% tax rate and has a 0.35
debt to equity ratio with $260 million (market value) in debt outstanding. Lansing’s equity beta is
1.35, the risk-free rate is currently 5% and the market risk premium is estimated to be 6.5%.
What is the current total value of Lansing’s equity (in millions)?
A) $655.90
B) $737.54
C) $840.61
D) $951.26
E) $1,025.95
111) Toys Galore has historically had a P/E ratio of 18.5. This ratio is considered a good
estimate of the future ratio. The firm currently has EPS of $2.10. These earnings are expected to
increase by 5.0 percent next year. What is the expected price of this stock one year from now?
A) $39.31
B) $40.79
C) $41.30
D) $42.78
E) $43.79