Question 1

Given that the required return on a preference share is 10% and that the preference share's current price is $7.50,then the dividend payment per preference share is:

Accepted Answer

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Question 2

What is the estimated value of a share that paid a $5 dividend this year,has dividends expected to grow at 6 per cent every year,and requires a 20 per cent return?

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Question 3

The National Bank of Australia has issued perpetual preference shares with a $100 par value.The bank pays a quarterly dividend of $1.40 on this share.What is the current price of this preference share given a required rate of return of 8.5 percent?

Accepted Answer

The price of a perpetual preference share is calculated using the formula: Price = Dividend / Required Rate of Return. The annual dividend is $1.40 * 4 = $5.60. Therefore, Price = $5.60 / 0.085 = $65.88.

Question 4

If the required rate of return is higher than the dividend rate of a preferred share,the par value is _________________ the current market value of the preferred share.

Accepted Answer

If the required rate of return is higher than the dividend rate, the market will discount the preferred share's price, making the par value higher than the current market value.

Question 5

Dave Amos Ltd pays a constant dividend of $2 every year.What will the stock sell for three years from now if the required rate of return is 9 percent?

Accepted Answer

The stock price of a perpetuity is calculated using the formula: Price = Dividend / Required Rate of Return. Here, Price = $2 / 0.09 = $22.22. Since the dividend is constant, the price remains the same in three years.

Question 6

A company has just paid a dividend on 20 cents per ordinary share.If dividends are expected to grow indefinitely at the rate of 5% pa and an investor's required rate of return is 15%,what is the share's intrinsic value?

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Question 7

Bedrock Ltd is about to issue preference shares paying $5 per year.If preference shareholders have a required rate of return of 12%,the current price of Bedrock's preference shares is:

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Question 8

Chameleon Company has issued perpetual preference shares with a par of $100 and a dividend of 5.5 percent.If the required rate of return is 7.75 percent,what is the share's current market price?

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The answer of Chameleon Company has issued perpetual preference shares...

Question 9

Which one of the following statements is not true about zero-growth shares?

Accepted Answer

Zero-growth shares have constant dividend payments, not zero.

Question 10

A preference share is known to be:

Accepted Answer

A preference share is considered a hybrid instrument because it has characteristics of both equity and debt.

Question 11

Matt's Carpentry Services Inc.has just paid a dividend of $0.55 per share.The dividends are expected to grow at an annual rate of 5 percent indefinitely.What is today's stock price if the required return is 12.5 percent?

Accepted Answer

The stock price can be calculated using the Gordon Growth Model: P = D1 / (r - g), where D1 is the next year's expected dividend ($0.55 * 1.05), r is the required return (12.5% or 0.125), and g is the growth rate (5% or 0.05). This gives P = $0.5775 / (0.125 - 0.05) = $7.70.

Question 12

Suppose that the current cash dividend of Capri Ltd is $0.30.Financial analysts expect the dividends to grow at a constant rate of 7 per cent per year,and investors require a 15 per cent return on this class of shares.What should be the current share price of Capri?

Accepted Answer

The correct answer is A because the current share price of Capri should be $4.01. This is calculated using the dividend discount model, which takes into account the current dividend, the expected growth rate of dividends, and the required return on the shares.

Question 13

Under the mixed growth dividend model,the assumption is:

Accepted Answer

The mixed growth dividend model assumes that a firm experiences a mix of constant and non-constant growth in dividend payments, typically starting with a period of non-constant growth followed by a period of constant growth.

Question 14

Plumbwise Ltd issued 200,000 preferred shares with a book value of $10 million three years ago.If the required return is 8.42% and the current market value of these preferred shares is $9.5 million,what is the annual dividend?

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Question 15

Just Us Realty Ltd has issued perpetual preference shares with a $100 par value.The company pays a quarterly dividend of $2.60 on this share.What is the current price of this preference share given a required rate of return of 12.5 percent?

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Question 16

A share is expected to pay dividends of $1 in one year,$1.20 in two years and then $1.30 in three years with this amount lasting in perpetuity.The current intrinsic value of this share given a discount rate of 5% is:

Accepted Answer

The answer of A share is expected to pay dividends...

Question 17

Rum City Foods Ltd is a wholesale company of frozen foods.The company pays a dividend of $7 per share per year,and the board of directors have no plan to change the dividend payouts.Investors within the company expect a return of 25% per share that they own.What is the price of one share?

Accepted Answer

The price of a share can be calculated using the dividend discount model for a perpetuity: Price = Dividend / Required Rate of Return. Here, Price = $7 / 0.25 = $28.00.

Question 18

The common stock of Grunskies Ltd currently sells for $48 per share.The firm has a constant dividend growth rate of 6 percent.If the required rate of return is 15 percent,what is the expected dividend yield on the stock?

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Question 19

Bundaberg Brewed Drinks Corporation has just announced a dividend of $0.80 for this year and $0.835 for the next year.Dividends are expected to grow at a constant rate indefinitely.What is the current stock price if the required return is 13.1 percent?

Accepted Answer

The current stock price can be calculated using the Gordon Growth Model (Dividend Discount Model). The formula is P = D1 / (r - g), where D1 is the dividend for the next year, r is the required return, and g is the growth rate. First, calculate the growth rate: g = ($0.835 - $0.80) / $0.80 = 0.04375 or 4.375%. Then, use the formula: P = $0.835 / (0.131 - 0.04375) = $9.57.

Question 20

Coral Coast Printers Ltd's preferred stock is selling for $30 per share.What is the expected dividend of year four if the required rate of return is 7.5 percent?

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Quiz 10: Equity Markets and Share Valuation