Question 1

Sorenson Corp.'s expected year-end dividend is D1 = $4.00,its required return is rS = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years,i.e. ,what is 1 = $4.00,its required return is rS = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years,i.e. ,what is   ? A)  $90.05 B)  $85.36 C)  $87.24 D)  $76.92 E)  $93.81" class="answers-bank-image d-inline" rel="preload" > ?

Accepted Answer

A)   $90.05
B)   $85.36
C)   $87.24
D)   $76.92
E)   $93.81F) D) and E)
G) None of the above

Question 2

Which of the following statements is CORRECT?

Accepted Answer

A)   To implement the corporate valuation model,we discount projected free cash flows at the weighted average cost of capital.
B)   To implement the corporate valuation model,we discount net operating profit after taxes (NOPAT) at the weighted average cost of capital.
C)   To implement the corporate valuation model,we discount projected net income at the weighted average cost of capital.
D)   To implement the corporate valuation model,we discount projected free cash flows at the cost of equity capital.
E)   The corporate valuation model requires the assumption of a constant growth rate in all years.F) C) and D)
G) B) and E)

Question 3

Ackert Company's last dividend was $4.00.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Accepted Answer

A)   $87.00
B)   $95.61
C)   $89.87
D)   $80.31
E)   $104.21F) A) and B)
G) None of the above

Question 4

If a stock's expected return as seen by the marginal investor exceeds this investor's required return,then the investor will buy the stock until its price has risen enough to bring the expected return down to equal the required return.

Accepted Answer

A) True 
 B)False

Question 5

The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.

Accepted Answer

A) True 
 B)False

Question 6

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D0?

Accepted Answer

A)   $0.95
B)   $1.38
C)   $1.37
D)   $1.22
E)   $1.06F) A) and E)
G) A) and C)

Question 7

Which of the following statements is CORRECT?

Accepted Answer

A)   If a company has two classes of common stock,Class A and Class B,the stocks may pay different dividends,but under all state charters the two classes must have the same voting rights.
B)   The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
C)   The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
D)   The stock valuation model,P0 = D1/(rs - g) ,cannot be used for firms that have negative growth rates.
E)   The stock valuation model,P0 = D1/(rs - g) ,can be used only for firms whose growth rates exceed their required return.F) A) and E)
G) B) and E) C

Question 8

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $40,what is the stock's expected total return for the coming year?

Accepted Answer

A)   8.80%
B)   10.09%
C)   6.47%
D)   10.35%
E)   8.63%F) D) and E)
G) C) and D)

Question 9

The Isberg Company just paid a dividend of $0.75 per share,and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.90,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price,P0?

Accepted Answer

A)   $10.19
B)   $9.89
C)   $9.10
D)   $7.52
E)   $10.98F) A) and B)
G) A) and C)

Question 10

Ryan Enterprises forecasts the free cash flows (in millions) shown below.The weighted average cost of capital is 13.0%,and the FCFs are expected to continue growing at a 5.0% rate after Year 3.What is the firm's total corporate value,in millions?  ​

Accepted Answer

A)   $268.01
B)   $196.22
C)   $217.75
D)   $272.79
E)   $239.29F) B) and D)
G) C) and D)

Question 11

You must estimate the intrinsic value of Noe Technologies' stock.The end-of-year free cash flow (FCF1) is expected to be $24.50 million,and it is expected to grow at a constant rate of 7.0% a year thereafter.The company's WACC is 10.0%,it has $125.0 million of long-term debt plus preferred stock outstanding,and there are 15.0 million shares of common stock outstanding.What is the firm's estimated intrinsic value per share of common stock?

Accepted Answer

A)   $47.96
B)   $46.11
C)   $38.27
D)   $40.12
E)   $34.58F) D) and E)
G) All of the above B

Question 12

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT?  ​

Accepted Answer

A)   The stock's required return is 10%.
B)   The stock's expected dividend yield and growth rate are equal.
C)   The stock's expected dividend yield is 5%.
D)   The stock's expected capital gains yield is 5%.
E)   The stock's expected price 10 years from now is $100.00.F) A) and C)
G) B) and E)

Question 13

If D0 = $2.25,g (which is constant) = 3.5%,and P0 = $54,what is the stock's expected dividend yield for the coming year?

Accepted Answer

A)   4.23%
B)   3.45%
C)   3.75%
D)   4.31%
E)   5.05%F) A) and B)
G) A) and D)

Question 14

Classified stock differentiates various classes of common stock,and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Accepted Answer

A) True 
 B)False

Question 15

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

Accepted Answer

A)   If Stock A has a lower dividend yield than Stock B,its expected capital gains yield must be higher than Stock B's.
B)   Stock B must have a higher dividend yield than Stock A.
C)   Stock A must have a higher dividend yield than Stock B.
D)   If Stock A has a higher dividend yield than Stock B,its expected capital gains yield must be lower than Stock B's.
E)   Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.F) None of the above
G) C) and E)

Question 16

If D1 = $1.25,g (which is constant) = 4.7%,and P0 = $22.00,what is the stock's expected dividend yield for the coming year?

Accepted Answer

A)   5.40%
B)   6.25%
C)   5.68%
D)   6.08%
E)   4.26%F) A) and D)
G) B) and E)

Question 17

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
B)   The corporate valuation model discounts free cash flows by the required return on equity.
C)   The corporate valuation model can be used to find the value of a division.
D)   An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
E)   Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon,or continuing,value.F) B) and E)
G) B) and D) B

Question 18

Two conditions are used to determine whether or not a stock is in equilibrium: (1)Does the stock's market price equal its intrinsic value as seen by the marginal investor,and (2)does the expected return on the stock as seen by the marginal investor equal this investor's required return? If either of these conditions,but not necessarily both,holds,then the stock is said to be in equilibrium.

Accepted Answer

A) True 
 B)False

Question 19

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Accepted Answer

A) True 
 B)False

Question 20

The preemptive right is important to shareholders because it

Accepted Answer

A)   allows managers to buy additional shares below the current market price.
B)   will result in higher dividends per share.
C)   is included in every corporate charter.
D)   protects the current shareholders against a dilution of their ownership interests.
E)   protects bondholders,and thus enables the firm to issue debt with a relatively low interest rate.F) A) and B)
G) C) and D)

Exam 9: Stocks and Their Valuation

Sorenson Corp.'s expected year-end dividend is D₁ = $4.00,its required return is r_S = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years,i.e. ,what is ?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Ackert Company's last dividend was $4.00.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (r_s) is 12.0%.What is the best estimate of the current stock price?

Correct Answer
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If a stock's expected return as seen by the marginal investor exceeds this investor's required return,then the investor will buy the stock until its price has risen enough to bring the expected return down to equal the required return.

Correct Answer
verified

The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.

Correct Answer
verified

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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C

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $40,what is the stock's expected total return for the coming year?

Correct Answer
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The Isberg Company just paid a dividend of $0.75 per share,and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.90,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price,P₀?

Correct Answer
verified

Ryan Enterprises forecasts the free cash flows (in millions) shown below.The weighted average cost of capital is 13.0%,and the FCFs are expected to continue growing at a 5.0% rate after Year 3.What is the firm's total corporate value,in millions?

Correct Answer
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Correct Answer
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B

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT?

Correct Answer
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If D₀ = $2.25,g (which is constant) = 3.5%,and P₀ = $54,what is the stock's expected dividend yield for the coming year?

Correct Answer
verified

Classified stock differentiates various classes of common stock,and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Correct Answer
verified

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

Correct Answer
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If D₁ = $1.25,g (which is constant) = 4.7%,and P₀ = $22.00,what is the stock's expected dividend yield for the coming year?

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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B

Correct Answer
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A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Correct Answer
verified

The preemptive right is important to shareholders because it

Correct Answer
verified

Exam 9: Stocks and Their Valuation

Sorenson Corp.'s expected year-end dividend is D1 = $4.00,its required return is rS = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years,i.e. ,what is ?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Ackert Company's last dividend was $4.00.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (rs) is 12.0%.What is the best estimate of the current stock price?

Correct AnswerverifiedShow Answer

If a stock's expected return as seen by the marginal investor exceeds this investor's required return,then the investor will buy the stock until its price has risen enough to bring the expected return down to equal the required return.

Correct AnswerverifiedShow Answer

The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.

Correct AnswerverifiedShow Answer

Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D0?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedC

If D1 = $1.25,g (which is constant) = 5.5%,and P0 = $40,what is the stock's expected total return for the coming year?

Correct AnswerverifiedShow Answer

The Isberg Company just paid a dividend of $0.75 per share,and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.90,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price,P0?

Correct AnswerverifiedShow Answer

Ryan Enterprises forecasts the free cash flows (in millions) shown below.The weighted average cost of capital is 13.0%,and the FCFs are expected to continue growing at a 5.0% rate after Year 3.What is the firm's total corporate value,in millions? ​

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT? ​

Correct AnswerverifiedShow Answer

If D0 = $2.25,g (which is constant) = 3.5%,and P0 = $54,what is the stock's expected dividend yield for the coming year?

Correct AnswerverifiedShow Answer

Classified stock differentiates various classes of common stock,and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control.

Correct AnswerverifiedShow Answer

Stocks A and B have the same price and are in equilibrium,but Stock A has the higher required rate of return.Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

If D1 = $1.25,g (which is constant) = 4.7%,and P0 = $22.00,what is the stock's expected dividend yield for the coming year?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

A proxy is a document giving one party the authority to act for another party,including the power to vote shares of common stock.Proxies can be important tools relating to control of firms.

Correct AnswerverifiedShow Answer

The preemptive right is important to shareholders because it

Correct AnswerverifiedShow Answer

Sorenson Corp.'s expected year-end dividend is D₁ = $4.00,its required return is r_S = 11.00%,its dividend yield is 6.00%,and its growth rate is expected to be constant in the future.What is Sorenson's expected stock price in 7 years,i.e. ,what is ?

Correct Answer
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Correct Answer
verified

Ackert Company's last dividend was $4.00.The dividend growth rate is expected to be constant at 1.5% for 2 years,after which dividends are expected to grow at a rate of 8.0% forever.The firm's required return (r_s) is 12.0%.What is the best estimate of the current stock price?

Correct Answer
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Correct Answer
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Correct Answer
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Goode Inc.'s stock has a required rate of return of 11.50%,and it sells for $29.00 per share.Goode's dividend is expected to grow at a constant rate of 7.00%.What was the last dividend,D₀?

Correct Answer
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Correct Answer
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C

If D₁ = $1.25,g (which is constant) = 5.5%,and P₀ = $40,what is the stock's expected total return for the coming year?

Correct Answer
verified

The Isberg Company just paid a dividend of $0.75 per share,and that dividend is expected to grow at a constant rate of 5.50% per year in the future.The company's beta is 1.90,the market risk premium is 5.00%,and the risk-free rate is 4.00%.What is the company's current stock price,P₀?

Correct Answer
verified

Ryan Enterprises forecasts the free cash flows (in millions) shown below.The weighted average cost of capital is 13.0%,and the FCFs are expected to continue growing at a 5.0% rate after Year 3.What is the firm's total corporate value,in millions?

Correct Answer
verified

Correct Answer
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B

Stock X has the following data.Assuming the stock market is efficient and the stock is in equilibrium,which of the following statements is CORRECT?

Correct Answer
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If D₀ = $2.25,g (which is constant) = 3.5%,and P₀ = $54,what is the stock's expected dividend yield for the coming year?

Correct Answer
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Correct Answer
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Correct Answer
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If D₁ = $1.25,g (which is constant) = 4.7%,and P₀ = $22.00,what is the stock's expected dividend yield for the coming year?

Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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