If the required return on equity is 12%, find the value of a stock that is expected to pay a $1.50 dividend at the end of the year and has an expected growth rate of dividends of 5%.
A. $12.45
B. $21.43
C. $22.50
D. $12.50
E. none of the above
2. Calculate the price one year ago for a stock that sells today for $45, just paid an annual dividend of $2.50, and experienced a 20% return over the past year. Ignore taxes.
A. $56.25
B. $37.50
C. $39.58
D. $35.42
E. none of the above
3. If the required return is 10%, find the current value of a stock that just paid a $2 dividend and has an expected growth rate of dividends of 5%.
A. $21
B. $42
C. $40
D. $20.95
E. none of the above
4. Find the value of a stock that is expected to pay a $2 dividend in one year. The dividend is not expected to grow. The required return is 10% APR.
A. $19.90
B. $20
C. $0.20
D. $1.82
E. none of the above
5. Find the required return on equity for a $30 stock that just paid a $2 dividend and has an expected growth rate of dividends of 4%.
A. 6.93%
B. 10.93%
C. 10.67%
D. 2.93%
E. none of the above
6. Calculate the payout ratio for a firm with a growth rate in dividends of 5% and a required return on equity of 20%.
A. 25%
B. 75%
C. 15%
D. 85%
E. none of the above
Use the following information to answer Questions 7 and 8.
A company plans to pay a $4 dividend next year, which represents 100% of expected earnings. This will provide investors with a 15% expected return. Alternatively, the company could plow back 40% of the earnings at the firm's current return on equity of 15%.
7. What is the value of the stock before the plowback decision?
A. $40
B. $13.33
C. $44.44
D. $26.67
E. none of the above
8. What is the value of the stock after the plowback decision?
A. $40
B. $13.33
C. $44.44
D. $26.67
E. none of the above
9. The XYZ Company just paid a dividend of $1.50 per share (from earnings of $3 per share). The required return on equity is 20%. What is their present value of growth opportunities?
A. $1.50
B. $0.50
C. $7.50
D. $9.00
E. none of the above
10. Your stock just paid a $1 dividend. Dividends are paid once per year. For the next two years, dividends are expected to grow at a super high rate of 15%, then fall back to the long-term rate of 5%. If the required return is 8%, what is the correct price for this stock today?
A. $46.29
B. $38.95
C. $56.21
D. $41.88
E. none of the above
This question was answered on: May 23, 2022
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