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Chapter 09 - Stock Valuation

38. Turnips and Parsley common stock sells for $39.86 a share at a market rate of return of 9.5%. The company just paid its annual dividend of $1.20. What is the rate of growth of its dividend? A. 5.2% B. 5.5% C. 5.9% D. 6.0% E. 6.3%

39. B&K Enterprises will pay an annual dividend of $2.08 a share on its common stock next year. Last week, 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%? A. $71.16 B. $74.01 C. $76.97 D. $80.05 E. $83.25

40. Wilbert's Clothing Stores just paid a $1.20 annual dividend. The company has a policy whereby the dividend increases by 2.5% annually. You would like to purchase 100 shares of stock in this firm but realize that you will not have the funds to do so for another three years. If you desire a 10% rate of return, how much should you expect to pay for 100 shares when you can afford to buy this stock? Ignore trading costs. A. $1,640 B. $1,681 C. $1,723 D. $1,766 E. $1,810

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Chapter 09 - Stock Valuation

41. The Merriweather Co. just announced that it will pay a dividend next year of $1.60 and is establishing a policy whereby the dividend will increase by 3.5% annually thereafter. How much will one share be worth five years from now if the required rate of return is 12%? A. $21.60 B. $22.36 C. $23.14 D. $23.95 E. $24.79

42. The Bell Weather Co. is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 20% a year for the next four years and then decreasing the growth rate to 5% per year. The company just paid its annual dividend in the amount of $1.00 per share. What is the current value of one share if the required rate of return is 9.25%? A. $35.63 B. $38.19 C. $41.05 D. $43.19 E. $45.81

43. 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%? A. $17.04 B. $22.39 C. $26.57 D. $29.08 E. $33.71

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Chapter 09 - Stock Valuation

44. Can't Hold Me Back, Inc. is preparing to pay its first dividends. It is 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% rate of return? A. $7.20 B. $14.48 C. $18.88 D. $21.78 E. $25.06

45. NU YU announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $.25 a share. The following dividends will be $.40, $.60, and $.75 a share annually for the following three years, respectively. After that, dividends are projected to increase by 3.5% per year. How much are you willing to pay to buy one share of this stock if your desired rate of return is 12%? A. $1.45 B. $5.80 C. $7.25 D. $9.06 E. $10.58

46. Now or Later, Inc. recently paid $1.10 as an annual dividend. Future dividends are projected at $1.14, $1.18, $1.22, and $1.25 over the next four years, respectively. After that, the dividend is expected to increase by 2% annually. What is one share of this stock worth to you if you require an 8% rate of return on similar investments? A. $15.62 B. $19.57 C. $21.21 D. $23.33 E. $25.98

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Chapter 09 - Stock Valuation

47. The Red Bud Co. just paid a dividend of $1.20 a share. The company announced today that it will continue to pay this constant dividend for the next 3 years after which time it will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 7%? A. $2.94 B. $3.15 C. $3.23 D. $3.44 E. $3.60

48. Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant $1 a share dividend indefinitely. Given a required return of 14%, what is the value of this stock? A. $4.82 B. $5.25 C. $5.39 D. $5.46 E. $5.58

49. The Lighthouse Co. is in a downsizing mode. The company paid a $2.50 annual dividend last year. The company has announced plans to lower the dividend by $.50 a year. Once the dividend amount becomes zero, the company will cease all dividends permanently. The required rate of return is 16%. What is one share of this stock worth? A. $3.76 B. $4.08 C. $4.87 D. $5.13 E. $5.39

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Chapter 09 - Stock Valuation

50. Mother and Daughter Enterprises is a relatively new firm that appears to be on the road to great success. The company paid its first annual dividend yesterday in the amount of $.28 a share. The company plans to double each annual dividend payment for the next three years. After that time, it is planning on paying a constant $1.50 per share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 11.5%? A. $9.41 B. $11.40 C. $11.46 D. $11.93 E. $12.43

51. BC ‘n D just paid its 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% discount rate? A. $20.48 B. $20.60 C. $21.02 D. $21.28 E. $21.43

52. Beaksley, Inc. is a very cyclical type of business which is reflected in its 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% rate of return, what is this stock worth today? A. $34.03 B. $37.21 C. $43.78 D. $48.09 E. $53.18

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