Question 1

The annual dividends for a stock over the past four years have been $1.90, $2.10, $2.20, and $2.35, respectively. What is the arithmetic growth rate in dividends?

Accepted Answer

The arithmetic growth rate is calculated by taking the difference between the final and initial values, dividing by the initial value, and then dividing by the number of periods. Here, the initial dividend is $1.90 and the final dividend is $2.35 over 3 periods (from year 1 to year 4). The growth rate = (($2.35 - $1.90) / $1.90) / 3 = 0.0737 or 7.37%.

Question 2

Assume a stock just paid an annual dividend of $1.20 per share. The required return on the stock is 14 percent. If the dividends are expected to grow at 12 percent for 4 years and 2 percent thereafter, what is the price of the stock?

Accepted Answer

To find the price of the stock, we use the Dividend Discount Model (DDM) for a multi-stage growth scenario. First, calculate the dividends for the first 4 years, which grow at 12%, and then find the price at the end of year 4 using the perpetuity formula with a 2% growth rate. Finally, discount all future dividends and the price back to the present value using the required return of 14%.1. Calculate dividends for the first 4 years:- D1 = $1.20 * (1 + 0.12) = $1.344- D2 = $1.344 * (1 + 0.12) = $1.50528- D3 = $1.50528 * (1 + 0.12) = $1.68632- D4 = $1.68632 * (1 + 0.12) = $1.888682. Calculate the stock price at the end of year 4 using the Gordon Growth Model (perpetuity formula with growth):- P4 = D5 / (r - g) = D4 * (1 + g2) / (r - g2)- P4 = $1.88868 * (1 + 0.02) / (0.14 - 0.02) = $1.92845 / 0.12 = $16.070423. Discount dividends and P4 back to present value:- PV = D1 / (1 + r)^1 + D2 / (1 + r)^2 + D3 / (1 + r)^3 + D4 / (1 + r)^4 + P4 / (1 + r)^4- PV = $1.344 / (1.14)^1 + $1.50528 / (1.14)^2 + $1.68632 / (1.14)^3 + $1.88868 / (1.14)^4 + $16.07042 / (1.14)^4- PV ≈ $1.17947 + $1.16162 + $1.14421 + $1.12722 + $11.49748 = $14.10Therefore, the correct answer is E) $14.10.

Question 3

A stock is currently priced at $17.65 and is expected to pay an annual dividend of $1.50 next year. If the dividends are expected to grow at 4 percent per year forever, what is the required return on the stock?

Accepted Answer

The answer of A stock is currently priced at $17.65...

Question 4

The dividends for a stock over the past six years have been $1.90, $1.95, $2.10, $2.15, $2.20 and $2.25, respectively. What is the geometric average growth rate in dividends?

Accepted Answer

The answer of The dividends for a stock over the...

Question 5

The annual dividends for a stock over the past five years have been $1.40, $1.55, $1.60, $1.70, and $1.75, respectively. What is the geometric average dividend growth rate for this period?

Accepted Answer

The answer of The annual dividends for a stock over...

Question 6

A stock is currently selling for $62. The required return is 12 percent, and the stock is expected to pay an annual dividend of $3.18 next year. What is the perpetual dividend growth rate for this stock?

Accepted Answer

The perpetual dividend growth rate can be calculated using the Gordon Growth Model (Dividend Discount Model for a perpetually growing dividend), which is P = D / (r - g), where P is the price of the stock, D is the dividend next year, r is the required return, and g is the growth rate. Rearranging the formula to solve for g gives us g = r - (D / P). Plugging in the values: g = 0.12 - (3.18 / 62) = 0.12 - 0.0513 = 0.0687 or 6.87%.

Question 7

A stock is expected to pay a dividend of $2.32 next year, and the current share price is $51. If the required return of the stock is 11 percent, what is the perpetual growth rate in dividends?

Accepted Answer

The formula to calculate perpetual growth rate is g = (D / P) + r, where D is the dividend, P is the current share price and r is the required return. 
g = (2.32 / 51) + 0.11
g = 0.0645 or 6.45% 
Therefore, the correct answer is C, 6.45%.

Question 8

Corrs Company stock just paid an annual dividend of $1.35 per share. The company announced dividends are expected to grow at 1.35 percent per year indefinitely. If the required return is 10 percent, what is the stock price?

Accepted Answer

We can use the constant growth dividend discount model to solve this problem.
First, we need to calculate the expected dividend next year:
Expected dividend = $1.35 x 1.0135 = $1.367725
Next, we can use the formula to calculate the stock price:
Stock price = Expected dividend / (Required return - Dividend growth rate)
Stock price = $1.367725 / (0.10 - 0.0135) = $21.5375
Rounding to the nearest cent, the stock price is $21.54, which is answer choice C.

Question 9

A company has a retention ratio of 80 percent. If the company's return on assets is 9.2 percent and the return on equity is 16.4 percent, what is the sustainable growth rate?

Accepted Answer

Sustainable growth rate = retention ratio × return on equity
Sustainable growth rate = 0.8 × 0.164 = 0.1312 or 13.12%

Question 10

A company has a net income of $238,000, total assets of $1,784,000 and total liabilities of $437,000. The company paid $66,640 in dividends. What is the sustainable growth rate of this firm?

Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula SGR = ROE * (1 - dividend payout ratio), where ROE (Return on Equity) is net income divided by shareholder's equity. Shareholder's equity can be found by subtracting total liabilities from total assets. In this case, shareholder's equity = $1,784,000 - $437,000 = $1,347,000. Thus, ROE = $238,000 / $1,347,000. The dividend payout ratio is dividends divided by net income, so $66,640 / $238,000. Plugging these values into the SGR formula gives us the sustainable growth rate, which is approximately 12.73%.

Question 11

The annual dividends paid by a certain stock are expected to grow at 3.5 percent per year forever. The required return on the stock is 13.5 percent, and the current stock price is $24.40. You own 300 shares of this stock, what is the total amount of dividend income you should expect next year?

Accepted Answer

First, we need to calculate the expected dividend per share next year:

Expected Dividend Next Year = Dividend this year * (1 + Growth Rate) 
= $0.00 * (1 + 0.035) 
= $0.00

Next, we need to calculate the expected stock price at the end of the year:

Expected Stock Price = Current Stock Price * (1 + Required Return) 
= $24.40 * (1 + 0.135) 
= $27.69

Finally, we can calculate the expected total dividend income:

Total Dividend Income = Expected Dividend Next Year * Number of Shares 
= $0.00 * 300 
= $0.00

Thus, the total amount of dividend income you should expect next year is $732 (Option C).

Question 12

A stock just paid an annual dividend of $0.40 a share. Dividends are expected to grow at 15 percent for the next 3 years and then grow at 3.5percent indefinitely. If the required return is 12 percent, what is the price of the stock today?

Accepted Answer

The answer of A stock just paid an annual dividend...

Question 13

A company pays a dividend of $0.64 per share. The equity per share is $9.50, earnings per share are $3.25, and assets per share are $14.25. What is the sustainable growth rate?

Accepted Answer

The answer of A company pays a dividend of $0.64...

Question 14

A company has a return on assets of 10.8 percent and a return on equity of 17.2 percent. If the company has a dividend payout ratio of 30 percent, what is the sustainable growth rate?

Accepted Answer

The sustainable growth rate (SGR) is calculated using the formula: SGR = ROE * (1 - Dividend Payout Ratio). Here, ROE is 17.2% and the Dividend Payout Ratio is 30%, so SGR = 17.2% * (1 - 0.30) = 12.04%.

Question 15

A company has a return on equity of 14.2 percent and a dividend payout ratio of 60 percent. What is the sustainable growth rate?

Accepted Answer

The sustainable growth rate can be calculated using the formula: Sustainable Growth Rate = Return on Equity (ROE) * (1 - Dividend Payout Ratio). Given an ROE of 14.2% and a dividend payout ratio of 60%, the calculation is: 14.2% * (1 - 0.60) = 14.2% * 0.40 = 5.68%.

Question 16

The dividends for a particular stock are expected to grow at 10 percent for 3 years and then 2.5 percent indefinitely. If the stock just paid an annual dividend of $1.20 a share last year and the required return is 12 percent, what is the price of the stock?

Accepted Answer

The answer of The dividends for a particular stock are...

Question 17

The required return on a particular stock is 13.5 percent. The stock is priced at $12.95 per share, and dividends are paid annually and are expected to grow at 3 percent per year forever. What is the dividend the stock just paid?

Accepted Answer

The answer of The required return on a particular stock...

Question 18

A company has 60,000 shares of stock outstanding at a market price of $29.28 per share and a book value of $17.27 a share. The firm has earnings per share of $2.44, a dividend payout ratio of 0.35, and a P/E ratio of 12. What is the sustainable growth rate?

Accepted Answer

The answer of A company has 60,000 shares of stock...

Question 19

The annual dividends for a stock over the past five years have been $1.50, $1.75, $1.77, $1.87, and $2.00, respectively. What is the arithmetic average growth rate in dividends?

Accepted Answer

The answer of The annual dividends for a stock over...

Question 20

A stock just paid an annual dividend of $0.40 a share. The dividends are expected to grow at 15 percent for 5 years and then 3 percent forever. If the required return is 11 percent, what is the price of the stock?

Accepted Answer

The price of the stock is calculated using the dividend discount model with two growth stages. First, calculate the dividends for the first 5 years with 15% growth, then calculate the terminal value at year 5 using the 3% perpetual growth rate. Discount all these cash flows back to the present value using the required return of 11%. The correct price is $8.37.

Quiz 7: Common Stock Valuation

The annual dividends for a stock over the past four years have been $1.90, $2.10, $2.20, and $2.35, respectively. What is the arithmetic growth rate in dividends?

Assume a stock just paid an annual dividend of $1.20 per share. The required return on the stock is 14 percent. If the dividends are expected to grow at 12 percent for 4 years and 2 percent thereafter, what is the price of the stock?

A stock is currently priced at $17.65 and is expected to pay an annual dividend of $1.50 next year. If the dividends are expected to grow at 4 percent per year forever, what is the required return on the stock?

The dividends for a stock over the past six years have been $1.90, $1.95, $2.10, $2.15, $2.20 and $2.25, respectively. What is the geometric average growth rate in dividends?

The annual dividends for a stock over the past five years have been $1.40, $1.55, $1.60, $1.70, and $1.75, respectively. What is the geometric average dividend growth rate for this period?

A stock is currently selling for $62. The required return is 12 percent, and the stock is expected to pay an annual dividend of $3.18 next year. What is the perpetual dividend growth rate for this stock?

A stock is expected to pay a dividend of $2.32 next year, and the current share price is $51. If the required return of the stock is 11 percent, what is the perpetual growth rate in dividends?

Corrs Company stock just paid an annual dividend of $1.35 per share. The company announced dividends are expected to grow at 1.35 percent per year indefinitely. If the required return is 10 percent, what is the stock price?

A company has a retention ratio of 80 percent. If the company's return on assets is 9.2 percent and the return on equity is 16.4 percent, what is the sustainable growth rate?

A company has a net income of $238,000, total assets of $1,784,000 and total liabilities of $437,000. The company paid $66,640 in dividends. What is the sustainable growth rate of this firm?

The annual dividends paid by a certain stock are expected to grow at 3.5 percent per year forever. The required return on the stock is 13.5 percent, and the current stock price is $24.40. You own 300 shares of this stock, what is the total amount of dividend income you should expect next year?

A stock just paid an annual dividend of $0.40 a share. Dividends are expected to grow at 15 percent for the next 3 years and then grow at 3.5percent indefinitely. If the required return is 12 percent, what is the price of the stock today?

A company pays a dividend of $0.64 per share. The equity per share is $9.50, earnings per share are $3.25, and assets per share are $14.25. What is the sustainable growth rate?

A company has a return on assets of 10.8 percent and a return on equity of 17.2 percent. If the company has a dividend payout ratio of 30 percent, what is the sustainable growth rate?

A company has a return on equity of 14.2 percent and a dividend payout ratio of 60 percent. What is the sustainable growth rate?

The dividends for a particular stock are expected to grow at 10 percent for 3 years and then 2.5 percent indefinitely. If the stock just paid an annual dividend of $1.20 a share last year and the required return is 12 percent, what is the price of the stock?

The required return on a particular stock is 13.5 percent. The stock is priced at $12.95 per share, and dividends are paid annually and are expected to grow at 3 percent per year forever. What is the dividend the stock just paid?

A company has 60,000 shares of stock outstanding at a market price of $29.28 per share and a book value of $17.27 a share. The firm has earnings per share of $2.44, a dividend payout ratio of 0.35, and a P/E ratio of 12. What is the sustainable growth rate?

The annual dividends for a stock over the past five years have been $1.50, $1.75, $1.77, $1.87, and $2.00, respectively. What is the arithmetic average growth rate in dividends?

A stock just paid an annual dividend of $0.40 a share. The dividends are expected to grow at 15 percent for 5 years and then 3 percent forever. If the required return is 11 percent, what is the price of the stock?