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Question 1 All of the following are used to determine the intrinsic value of a stock, EXCEPT

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Question 1 All of the following are used to determine the intrinsic value of a stock, EXCEPT:

(A) forecast of the stock price

(B) Market price

(C) forecast of future cash flows for the stock

(D) calculation of present value of these cash flows

Question 2

An investor can obtain an EPS forecast by using Internet sources and computer databases. True or false?

(A) True

(B)False

Question 3

The Gordon growth model (Stock price = Dividends D New Year / r – g) ) assumes that

(A) dividends will remain at their current level indefinitely

(B) dividends will grow at the constant rate of r forever

(C) dividends will grow at the constant rate of g forever

(D) dividends will remain at next year’s level indefinitely

Question 4

The common stock of Average Corporation is selling for $10 a share and is expected to pay a dividend of $0.50 a share next year. If dividends are expected to grow at a constant rate of 4% indefinitely, what is the market requiring as a return on this company’s stock?

(A) 1.4%

(B) 4.0%

(C) 5.0%

(D) 9.0%

Question 5

You would like to establish a fund that will be used to offer a scholarship each year to a worthy student at

your alma mater. You would like the total annual award to be $5,000, with the first award to be presented today. Your alma mater is able to invest the funds at a constant, annual, tax-free rate of 8%. How much must you donate today to fund this award? Round your answer to the nearest dollar.

(A) $62,500

(B) $46,296

(C) $67,500

(D) $51,296

Question 6

An issue of preferred stock that pays an annual dividend of $6 is selling for $32 a share. The annual return on this investment is

(A) 8.75%

(B) 18.75%

(C) 5.33%

(D) 4.33%

Question 7

The most widely used ratios for rating stocks are listed below.

Price/Earnings ratio (PER);
Dividend income
Return on Equity (ROE)
Return on Investments (ROI).
These are the correct variables for rating stocks. True or false?

(A) True

(B) False

Question 8

The investor identified a stock as cyclical by observing that it is related with industries producing machinery, plant, office equipment, computers, and other electronic instruments. True or false?

(A) True

(B) False

Question 9

A firm has 500 stockholders, each of whom own $100 in shares. If the firm uses $10,000 to repurchase shares, how many stockholders would remain, and what would be the value of their shares?

(A) 400 shareholders would each own shares worth $100

(B) 400 shareholders would each own shares worth $80

(C) 400 shareholders would each own shares worth $120

(D) 500 shareholders would each own shares worth $80

Question 10

Assume that dividends are taxed at your marginal tax rate of 28% while capital gains are taxed at 15%. How much more will you net if you earn $1,000 in capital gains than if the $1,000 were dividend income?

(A) $570

(B) $13

(C) $114

(D) $130

Question 11

Common stocks do not have a term to maturity. Therefore, stocks that do not pay dividends do not have any value. True or false?

(A) True

(B) False

Question 12

A firm has 1 million shares outstanding and produced income of $1.8 million this year. The market price of the stock is $54.00. If the firm pays a 10% stock dividend at the same time as the earnings announcement, what will the earnings per share be after this dividend is paid?

(A) $1.80

(B) $1.64

(C) $5.40

(D) $1.98

Question 13

The following variables affect the price / earnings ratio, EXCEPT:

(A) Net income

(B) Earnings per share

(C) Market price of the stock

Question 14

On May 23, 2018, the board of directors of Hasbro, Inc. announced that it would pay a dividend of $0.20 a share on August 15, 2018, to shareholders of record as of August 1, 2018. In order to receive this dividend, an investor would have to purchase the stock on or before

(A) May 23, 2018

(B) August 1, 2018

(C) August 15, 2018

(D) the cum-dividend date

Question 15

A project is expected to produce a cash flow of $20,000 next year. The cash flow is expected to grow at a rate of 8% indefinitely. If the opportunity cost of capital is a constant 12%, what is the maximum amount you should be willing to invest in the project?

(A) $500,000

(B) $540,000

(C) $560,000

(D) none of the above

Question 16

A reverse stock split will

(A) reduce the market price per share of the firm’s stock

(B) reduce the total market value of the firm’s equity

(C) increase the number of shares outstanding

(D) increase the market price per share of the firm’s stock

Question 17

Stable Corporation currently pays a dividend of $0.50 a share. The firm’s dividends are expected to grow at a constant rate of 10% indefinitely. If investors require a 15% return on Stable’s stock, at what price should it sell?

(A) $5.00

(B) $10.00

(C) $11.00

(D) $11.50

Question 18

In which of the following situations might a stock repurchase result in increased firm value?

(A) when a firm executes a targeted repurchase in order to buy back shares from specific shareholders at above-market prices

(B) when a firm does an open market, rather than an auction-based, repurchase

(C) Stock repurchases never increase or decrease the value of the firm

(D) when a firm without any positive NPV projects executes a repurchase to distribute excess cash flow to the shareholders

Question 19

Blue chips stocks have a long continuous history of paying dividends. True or false?

(A) True

(B) False

Question 20

The cost of equity capital for the Houck Corporation is 18%. If the stock offers a dividend yield of 7%, what is the implied expected growth rate?

(A) 25%

(B) 9%

(C) 2.4%

(D) None of the above

 
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