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Exam 7: Common Stock: Characteristics, Valuation, and Issuance

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Question 31

Multiple Choice

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Assume Zero-Sum Enterprise pays an annual dividend of $1.40 per share and that neither earnings nor dividends are expected to grow in the future.What is the value of Zero-Sum's stock to an investor who requires a 14 percent rate of return?

A) $14.00
B) $10.00
C) $20.00
D) 0

E) None of the above
F) A) and C)

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Question 32

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From an accounting standpoint, stock dividends involve a transfer from the

A) common stock account
B) cash account
C) retained earnings account
D) capital surplus account

E) A) and B)
F) None of the above

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Question 33

Multiple Choice

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The common stock of Kute & Kuddly Kids Clothes, Inc.currently sells for $88.50 and its current (D0) dividend is $1.10.Determine the implied growth rate for Kute assuming that an investor's required rate of return is 14% and that earnings and dividends are expected to grow at a constant rate.

Over the past 10 years the dividends of Allegro have grown from $0.45 to $1.82 per share.Determine the value of Allegro's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years.

The rights of stockholders to share equally on a per share basis in any distributions of corporate earnings is known as ____.

The zero growth method is used to value

In marketing a new security issue, the investment banker assumes the risk of not being able to sell the security at a favorable price in each of the following cases except:

In stock quotations, the last column, showing the net change, indicates the net change in

What is the rate of return to an investor in the stock of Bajo, Inc.if the current dividend of $0.80 is not expected to change in the foreseeable future? The current price of Bajo is $13.25.

In the constant-growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus:

The current price of Zebar is $32.00 and the current dividend is $.60.What is an investor's required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8 percent?

Many preferred stocks are treated as in determining their values.

The market value of common stock is primarily based on

What is the value of a share of stock of HOV Inc.to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent.

Stockholders' equity includes all of the following except:

Zimmer's common stock sells for $37 and its dividend is expected to grow at a rate of 8 percent annually.What is the expected dividend (D1) given that an investor requires a return of 16 percent?

The earnings of Foggy Futures Weather Forecasting Company are expected to grow at an annual rate of 14% over the next 5 years and then slow to a constant rate of 10% per year.Foggy currently pays a dividend of $0.36 per share.What is the value of Foggy's stock to an investor who requires a 16% rate of return?

Which of the following are reasons why large multinational corporations may sell equity in international markets rather than selling stock only in the country in which they are domiciled?

All of the following are reasons that companies hold treasury stock EXCEPT:

When a stock is split 2 for 1, then the figure on the firm's balance sheet is cut in half.