BUS 405 Week 2 Chapter 6 Common Stock Valuation

This pack of BUS 405 Week 2 Chapter 6 Common Stock Valuation contains:

1. Which one of the following terms is used to identify the evaluation method that determines the value of a stock by reviewing a firm's financial statement in conjunction with other financial and economic information?

2. The method of valuing a stock based on the present value of the future income derived from that stock is called:

3. The model used to value a stock that pays a dividend which increases at a constant rate forever is referred to as which one of the following? Assume the growth rate is less than the discount rate.

4. How is a sustainable dividend growth rate defined?

5. The portion of net income that is held by a firm, for future growth, comprises which one of the following balance sheet accounts?

6. What is the percentage of a firm's earnings that is distributed to shareholders called?

7. What is the percentage of a firm's net income which is reinvested in the firm to support future growth called?

8. The model used to value the stock of a firm which has a short-term growth rate that varies from its long-term growth rate is called the _____ dividend growth model.

9. What is beta?

10. What is the accounting relationship in which earnings per share minus dividends equal the change in book value per share called?

11. The Free Cash Flow Model:

I. can be used to value a company with negative earnings

II. is based on a firm having positive cash flows

III. requires that a firm pay a dividend

IV. directly estimates a value for a firm's equity

12. What is the market value of a share of stock divided by the net income per share called?

13. The net income per share divided by the market price per share is called the:

14. Growth stocks are frequently described as having which one of the following characteristics?

15. The price-book ratio is computed as the market value per share divided by the per share book value of:

16. A firm's current stock price divided by the firm's revenue per share is referred to as which one of the following ratios?

17. An analysis of which of the following are commonly included as part of fundamental analysis?

I. sales

II. book value

III. earnings per share

IV. cash flow

18. Based on the dividend discount model, an increase in which of the following will lower the current value of a stock?

I. amount of the next dividend

II. dividend growth rate

III. discount rate

19. The dividend discount model assumes that:

20. The constant perpetual growth model assumes the:

21. The constant perpetual growth model is applicable primarily to those firms which:

22. Which one of the following is a correct formula for computing a geometric average dividend growth rate?

23. The arithmetic average dividend growth rate is:

24. The retention ratio is the:

25. An increase in the retention ratio will:

26. A decrease in which one of the following will increase a firm's sustainable rate of growth?

27. The sustainable growth rate is equal to:

28. Hypo Tech expects its net income to grow at 20 percent a year for the next two years and then taper off to a constant 5 percent annual rate of growth. The firm maintains a constant dividend payout ratio. Which one of the following models is best suited for computing the current value of this firm's stock?

29. Which one of the following is a requirement of the two-stage dividend growth model?

30. Which one of the following statements concerning beta is correct?

31. Which one of the following is correct concerning the two-stage dividend growth model?

32. How will the price of a stock be affected if the dividend growth rate is decreased?

33. Which one of the following will increase the current residual income of a firm?

34. Which one of the following models can be used to value the stock of a firm that maintains a one hundred percent retention ratio?

35. Which of the following have the same meaning as the term "economic value added"?

I. abnormal earnings

II. residual income

III. value created by a firm in period t

IV. EPSt - Bt-1 ? k

36. Which one of the following correctly expresses the clean surplus relationship?

37. Which one of the following statements related to the price-earnings (P/E) ratio is correct?

38. Which one of the following is used as an indicator that a firm has good-quality earnings?

39. Which one of the following is the most common definition of cash flow as used in the price-cash flow ratio?

40. The price-sales ratio helps measure the ability of a firm to generate:

41. You would like to know the value of a firm's equity today in relation to the cost of that equity. Which one of the following ratios will provide you with this information?

42. PT Boats plans to pay a $2.40 a share dividend at the end of each of the next 2 years. At the end of year 3, it will pay a final liquidating dividend of $12 a share. After that, the company plans to close its doors permanently. What is the current value of this stock at a discount rate of 16 percent?

43. Upwind Tours just announced that it will pay an annual dividend of $3.60 a share one year from now. Two years from now, the company expects to pay a $28 a share liquidating dividend. After that, the company will cease operations. What is the current value per share at a discount rate of 12.5 percent?

44. Lakeside Sheet Metal is downsizing and plans on completely closing 3 years from now. The firm's liquidation plan calls for annual dividends of $2, $4, and $35 over the next 3 years, respectively. What is the current value of this stock given a discount rate of 14 percent?

45. Barn Wood Interiors announced today that it is going out of business. As of today, no more regular dividends will be paid. The firm will, however, pay two liquidating dividends. The first will be paid one year from now in the amount of $14 a share. The second and final payment will be paid two years from now at an estimated $38 a share. What is the value of this stock today at a discount rate of 18.7 percent?

46. Blue Water Tours just paid an annual dividend of $0.72 a share. The firm has a policy of increasing the dividend by 3.0 percent annually. What is the current value of this stock at a discount rate of 11.7 percent?

47. Precision Engineering recently announced that its next annual dividend will be $1.20 per share with later dividends increasing by 2.5 percent annually. What is the current value of this stock to you if you require a 12 percent rate of return?

48. The Fish House increases its dividend each year. The next annual dividend is expected to be $2.21 a share. Future dividends will increase by 3.5 percent annually. What is the current value of this stock if the discount rate is 12 percent?

49. Long Life Floors just paid an annual dividend of $0.82 a share and plans on increasing future dividends by 2 percent annually. The discount rate is 15 percent. What will the value of this stock be 5 years from today?

50. Wilson's Furniture is experiencing good growth so has decided to commence paying dividends starting next year. The first dividend will be $0.50 a share with annual increases of 4 percent in the dividend amount. The discount rate is 11 percent. What will the value of this stock be three years from now?

51. The Back Room just paid an annual dividend of $1.65 a share. The firm expects to pay dividends forever and to increase the dividend by 3 percent annually. What is the expected value of this stock five years from now if the discount rate is 14 percent?

52. Main Street Antiques is planning on paying an annual dividend of $2.60 per share next year. The company is slowly downsizing and is decreasing its dividend by 2 percent annually. What is the current value of this stock at a discount rate of 12 percent?

53. You are considering buying shares of stock in the Steel Mill. The forecast for the firm is steady growth over the next decade. The firm just paid its annual dividend of $1.42 per share and has plans to increase that amount by 4 percent annually indefinitely. You require a 12.5 percent return on this type of security. What is your estimate of the value of this stock ten years from now?

54. DT Industries stock is valued at $9.60 a share. The firm pays annual dividends at an increasing rate of 2 percent annually. Next year's dividend will be $1.50 per share. What is the required return on this stock?

55. Wholesale Foods common stock is valued at $11.05 per share. The firm pays annual dividends which increase at a constant rate. The last dividend paid was $1.20. The required return is 12 percent. What is the dividend growth rate?

56. A stock sells for $14.85 a share and has a required return of 14 percent. Dividends are paid annually and increase at a constant 3 percent per year. What is the amount of the last dividend paid?

57. Factory Stores pays annual dividends and increases those dividends by 2 percent each year. The stock is currently valued at $12 a share and has a required return of 16 percent. You own 400 shares of this stock. What is the total amount of dividend income you should expect to receive next year?

58. The common stock of JL Recyclers has a required return of 14 percent and a current value of $18.72. The company pays its dividend annually and increases the amount by 4 percent each year. You own 200 shares of this stock. What was the total amount of the last dividend you received?

59. The Rug Barn has paid annual dividends of $1.30, $1.36, $1.40, $1.42, and $1.45 over the last 5 years, respectively. What is the geometric average dividend growth rate?

60. A firm has paid annual dividends of $1.45, $1.53, $1.55, $1.60, $1.62, and $1.66 per share over the past 6 years, respectively. What is the geometric average growth rate for these dividends?

61. Over the past 5 years, DL Insulation has paid annual dividends of $1.40, $1.55, $1.70, $1.73, and $1.77 per share. What is the geometric average dividend growth rate for this period?

62. The Brown Jug has paid annual dividends of $0.61, $0.65, $0.70, $0.80, and $0.88 per share over the past 5 years, respectively. What is the geometric average dividend growth rate for this period?

63. Dennison Mfg. pays annual dividends. For the past six years, the firm has paid dividends of $1.10, $1.12, $1.25, $1.28, $1.30, and $1.40, respectively. What is the geometric average dividend growth rate for this time period?

64. Over the past 4 years, a local firm has paid annual dividends of $1.62, $1.65, $1.70, and $1.74. What is the arithmetic average dividend growth rate?

65. Blue Water Tours has paid annual dividends of $2.10, $2.12, $2.15, $2.15, and $2.22 over the past 5 years, respectively. What is the arithmetic average growth rate for these dividends?

66. Knit