fiance ch 4

Question 1

The ABC Co. has paid annual dividends of $0.30, $0.64, $1.20, and $1.45 over the past four years. Dividends
in the future are expected to grow at a constant rate of 3.5%. Which one of the following formulas should be
used to compute the value of the stock today

Answer 1

P0 = D1/(r - g)

Question 2

The term __________ is usually applied to stock that has no special preference either in paying dividends or
in bankruptcy

Answer 2

common stock

Question 3

The KLS Co. is expected to pay the following annual dividends for the next three years: $1.00, $1.50, and
$1.60, respectively. After that time, it is expected to increase its dividends by 3% annually. Stocks similar to
KLS are yielding 9.5%. What is one share of KLS worth today

Answer 3

asnwer this by doing d / 1+ similar yield^ years out and on the last divident do this d / yeild - growth x 1/ yeild^2

Question 4

The Koster Co. currently pays an annual dividend of $1.00 and plans on increasing that amount by 5% each
year. The Keyser Co. currently pays an annual dividend of $1.00 and plans on increasing its dividend by 3%
annually. Given this, it can be stated with certainty that the _____ of the Koster Co. stock is greater than the
_____ of the Keyser Co. stock

Answer 4

rate of capital gain; rate of capital gain

Question 5

Shareholders generally have the right to:
I. elect the corporate directors.
II. select the senior management of the firm.
III. elect the chief executive officer (CEO).
IV. elect the chief operating officer (COO).

Answer 5

only 1

Question 6

7. Redline Motors has adopted a policy of increasing the annual dividend on its common stock at a constant rate
   of 3.5% annually. The last dividend it paid was $1.21 a share. What will its dividend be 7 years from now

Answer 6

1.54

Question 7

Lee Hong Imports paid a $1.00 per share annual dividend last week. Dividends are expected to increase by
5% annually. What is one share of this stock worth to you today if the appropriate discount rate is 14%

Answer 7

d0 / discount - growth

Question 8

Shares of Bleckwell Remodelers common stock are currently selling for $32.50 a share. The last annual
dividend paid was $2.25 per share. The market rate of return is 14%. At what rate is the dividend growing

Answer 8

manipulate the following formula and ur gonna have to foil and pair like terms:
p = d0 x (1+g) / r- g