STOCK VALUE

58. Michaels, Inc. just paid $1.40 to their shareholders as the annual dividend. Simultaneously, the
company announced that future dividends will be increasing by 4.5 percent. If you require
an 8 percent rate of return, how much are you willing to pay to purchase one share of
Michaels stock?
a. $31.11
b. $32.51
c. $40.00
d. $41.80
e. $43.68
STOCK VALUE
59. Angelinas made two announcements concerning their common stock today. First, the
company announced that their next annual dividend has been set at $2.16 a share.
Secondly, the company announced that all future dividends will increase by 4 percent
annually. What is the maximum amount you should pay to purchase a share of
Angelinas stock if your goal is to earn a 10 percent rate of return?
a. $21.60
b. $22.46
c. $27.44
d. $34.62
e. $36.00
STOCK VALUE
60. How much are you willing to pay for one share of stock if the company just paid an
$.80 annual dividend, the dividends increase by 4 percent annually and you require an
8 percent rate of return?
a. $19.23
b. $20.00
c. $20.40
d. $20.80
e. $21.63

STOCK VALUE
61. Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are
expected to increase by 5 percent annually. What is one share of this stock worth to
you today if the appropriate discount rate is 14 percent?
a. $7.14
b. $7.50
c. $11.11
d. $11.67
e. $12.25
STOCK VALUE
62. Majestic Homes stock traditionally provides an 8 percent rate of return. The company
just paid a $2 a year dividend which is expected to increase by 5 percent per year. If
you are planning on buying 1,000 shares of this stock next year, how much should you
expect to pay per share if the market rate of return for this type of security is 9 percent
at the time of your purchase?
a. $48.60
b. $52.50
c. $55.13
d. $57.89
e. $70.00
STOCK VALUE
63. Leslies Unique Clothing Stores offers a common stock that pays an annual dividend
of $2.00 a share. The company has promised to maintain a constant dividend. How
much are you willing to pay for one share of this stock if you want to earn 12 percent
return on your equity investments?
a. $10.00
b. $13.33
c. $16.67
d. $18.88
e. $20.00
STOCK VALUE
64. Martins Yachts has paid annual dividends of $1.40, $1.75, and $2.00 a share over the
past three years, respectively. The company now predicts that it will maintain a
constant dividend since its business has leveled off and sales are expected to remain
relatively constant. Given the lack of future growth, you will only buy this stock if you
can earn at least a 15 percent rate of return. What is the maximum amount you are
willing to pay to buy one share of this stock today?
a. $10.00
b. $13.33
c. $16.67
d. $18.88
e. $20.00

REQUIRED RETURN
65. The common stock of Eddies Engines, Inc. sells for $25.71 a share. The stock is
expected to pay $1.80 per share next month when the annual dividend is distributed.
Eddies has established a pattern of increasing their dividends by 4 percent annually
and expects to continue doing so. What is the market rate of return on this stock?
a. 7 percent
b. 9 percent
c. 11 percent
d. 13 percent
e. 15 percent
REQUIRED RETURN
66. The current yield on Alphas common stock is 4.8 percent. The company just paid a
$2.10 dividend. The rumor is that the dividend will be $2.205 next year. The dividend
growth rate is expected to remain constant at the current level. What is the required
rate of return on Alphas stock?
a. 10.04 percent
b. 16.07 percent
c. 21.88 percent
d. 43.75 percent
e. 45.94 percent
REQUIRED RETURN
67. Marthas Vineyard recently paid a $3.60 annual dividend on their common stock. This
dividend increases at an average rate of 3.5 percent per year. The stock is currently
selling for $62.10 a share. What is the market rate of return?
a. 2.5 percent
b. 3.5 percent
c. 5.5 percent
d. 6.0 percent
e. 9.5 percent
Chapter 08 Quiz A Student Name _________________________

Student ID ____________

________ 1. The Morgan Co. has 750,000 shares of stock outstanding with a market price of $41.84 a share.
You currently
own 46,500 shares. The company has three open positions on their board of directors. You want
to
assure yourself of winning one of those seats assuming that no one else votes for you. The
company uses
cumulative voting. How much more must you invest in the Morgan Co. to assure yourself a seat
on the
board?
a. $5,899,482
b. $7,845,042
c. $8,514,482
d. $13,744,482
________ 2.
must be paid

Which one of the following statements is correct concerning equity securities?

a. Preferred shareholders generally receive 10 votes for every share of stock they own.
b. If a dividend payment is missed on a non-cumulative preferred stock, the missed payment
prior to paying any common stock dividends.
c. A 5.5 percent preferred stock pays a quarterly dividend of $5.50.
d. The dividend growth model assumes that the required rate of return exceeds the growth rate.

________ 3. You would like to earn a 9.5 percent rate of return on a 7 percent preferred stock. How much are
you willing
to pay per share?
a. $73.68
b. $76.65
c. $101.65
d. $135.71

________ 4. The common stock of Neals Metal Works sells for $32.89 a share. The company recently paid
their annual
dividend of $1.80 per share and expects to increase this dividend by 2.5 percent annually. What
is the rate
of return on this stock?
a. 5.61 percent
b. 7.84 percent c. 7.97 percent d. 8.11 percent
________ 5. Mertyle, Inc. recently announced that their annual dividend will be increasing to $2.20 a share
for next year
with annual increases in the dividend amount of 1.75 percent thereafter. You require a 14.5
percent rate of
return on this relatively risky security. How much are you willing
to pay for one share of this stock?
a. $16.48
b. $16.95
c. $17.25
d. $17.56
________6.
over the next

Carbon Fiber, Inc. is expected to pay annual dividends of $.60, $1.30, $1.80, and $2.00 a share
four years, respectively. After that, the dividend is expected to increase by 2 percent annually.

What is one
share of Carbon Fiber stock worth today if similar stocks are yielding a 9 percent return?
a. $20.64
b. $23.39
c. $25.09
d. $27.35
________ 7. The Ol Tech Co. last paid a $2.40 annual dividend. The market rate of return on this security is
13 percent
and the market price is $28.70 a share. What is the expected growth rate of Ol Tech?
a. 3.56 percent
b. 4.28 percent c. 4.48 percent d. 5.07 percent
________ 8.

Preferred stockholders are generally granted:

I.
the right to demand higher dividend payments if the inflation rate exceeds a pre-

specified level.
II.
voting rights if their dividends remain unpaid for a period of time.
III.
priority over bondholders in a company liquidation.
IV.
priority over common stockholders in relation to dividend distributions.
a. I and II only
b. II and III only
c. I and IV only
d. II and IV only
________ 9. Nu-Tek, Inc. recently announced that they will pay their first annual dividend next year in the
amount of $.50
a share. The dividend will be increased by 20 percent annually for the following three years,
after which time
the increase will be limited to 3 percent annually. How much are you willing to pay for one
share of this stock
if you require an 8 percent rate of return?
a. $12.11
b. $14.30
c. $14.89
d. $15.27
________ 10. The common stock of the Zing Co. is selling for $52.40 a share and offers an 8.7 percent rate of
return. If the
dividend growth rate is constant at 3 percent, what is the amount of the last annual dividend
paid?
a. $2.82
b. $2.86
c. $2.90
d. $2.99

CONSTANT DIVIDEND
75. You have decided that you would like to own some shares of GH Corp. but need an
expected 12 percent rate of return to compensate for the perceived risk of such ownership.
What is the maximum you are willing to spend per share to buy GH stock if the company
pays a constant $3.50 annual dividend per share?
a. $26.04

b.
c.
d.
e.

$29.17
$32.67
$34.29
$36.59

GROWTH DIVIDEND
76. Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of
9.5 percent. The company just paid their annual dividend of $1.20. What is the rate of
growth of their dividend?
a. 5.2 percent
b. 5.5 percent
c. 5.9 percent
d. 6.0 percent
e. 6.3 percent
GROWTH DIVIDEND
77. B&K Enterprises will pay an annual dividend of $2.08 a share on their common stock
next week. Last year, the company paid a dividend of $2.00 a share. The company
adheres to a constant rate of growth dividend policy. What will one share of B&K
common stock be worth ten years from now if the applicable discount rate is 8
percent?
a. $71.16
b. $74.01
c. $76.97
d. $80.05
e. $83.25
PREFERRED STOCK
98. You want to earn a 12 percent rate of return. Panco, Inc. preferred stock pays a $4.50
annual dividend. What is the maximum price you are willing to pay for one share of this
stock?
a. $32.50
b. $37.50
c. $39.00
d. $40.50
e. $45.00
NEGATIVE GROWTH
94. The Double Dip Co. is expecting their ice cream sales to decline due to the increased
interest in healthy eating. Thus, the company has announced that they will be reducing
their annual dividend by 5 percent a year for the next two years. After that, they will
maintain a constant dividend of $1 a share. Last year, the company paid $1.40 per
share. What is this stock worth to you if you require a 9 percent rate of return?
a. $10.86
b. $11.11
c. $11.64
d. $12.98
e. $14.23
NONCONSTANT DIVIDENDS
90. BC n D just paid their 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. What is this stock worth today at a 6
percent discount rate?
a. $20.48
b. $20.60
c. $21.02
d. $21.28

e.

$21.43

NONCONSTANT DIVIDENDS
91. Beaksley, Inc. is a very cyclical type of business which is reflected in their dividend
policy. The firm pays a $2.00 a share dividend every other year. The last dividend was
paid last year. Five years from now, the company is repurchasing all of the outstanding
shares at a price of $50 a share. At an 8 percent rate of return, what is this stock worth
today?
a. $34.03
b. $37.21
c. $43.78
d. $48.09
e. $53.18
SUPERNORMAL GROWTH
82. The Extreme Reaches Corp. last paid a $1.50 per share annual dividend. The
company is planning on paying $3.00, $5.00, $7.50, and $10.00 a share over the next
four years, respectively. After that the dividend will be a constant $2.50 per share per
year. What is the market price of this stock if the market rate of return is 15 percent?
a. $17.04
b. $22.39
c. $26.57
d. $29.08
e. $33.71
SUPERNORMAL GROWTH
83. Cant Hold Me Back, Inc. is preparing to pay their first dividends. They are
going to pay $1.00, $2.50, and $5.00 a share over the next three years, respectively. After
that, the company has stated that the annual dividend will be $1.25 per share indefinitely.
What is this stock worth to you per share if you demand a 7 percent rate of return?
a. $7.20
b. $14.48
c. $18.88
d. $21.78
e. $25.06
GROWTH DIVIDEND
79. The Merriweather Co. just announced that they are increasing their annual dividend to
$1.60 and establishing a policy whereby the dividend will increase by 3.5 percent
annually thereafter. How much will one share of this stock be worth five years from
now if the required rate of return is 12 percent?
a. $21.60
b. $22.36
c. $23.14
d. $23.95
e. $24.79