Chap007.docx-CHAPTER 7 Equity Markets an...
Chap007.docx-CHAPTER 7 Equity Markets and Stock
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Chap007.docx-CHAPTER 7 Equity Marke...
Chap007.docx-CHAPTER 7 Equity Markets and Stock
Page 14
CONSTANT GROWTH STOCK (BASIC)
a
68. The common stock of Wetmore Industries is valued at \$10.08 a share. The company
increases their dividend by 3.5 percent annually and expects their next dividend to be
\$1.24. What is the required rate of return on this stock?
a.
15.80 percent
b.
16.23 percent
c.
16.35 percent
d.
16.49 percent
e.
16.53 percent
CONSTANT GROWTH STOCK (INTERMEDIATE)
c
69.
Davis and Sons just paid an annual dividend of \$1.40. The company has increased
their dividend by 2 percent a year for the past twenty years and expects to continue
doing so. What will a share of this stock be worth five years from now if the required
return is 12 percent?
a.
\$14.28
b.
\$15.46
c.
\$15.77
d.
\$15.89
e.
\$16.09
NONCONSTANT GROWTH STOCK (BASIC)
d
70. Charlie’s Music just announced that they will commence paying annual dividends
next
two
year. They plan to pay \$1.00 a year for three years, \$1.20 a year for the following
years, and then cease paying dividends. How much is one share of this stock worth to
you today if you require a 10 percent rate of return?
a.
\$3.35
b.
\$3.71
c.
\$3.87
d.
\$4.05
e.
\$5.40
NONCONSTANT GROWTH STOCK (INTERMEDIATE)
c
71. Watson Electric has paid a constant dividend of \$1.50 a share for the past 100 years.
Yesterday, they announced that the dividend will increase next year by 10 percent
and
will stay at the level for two years, after which time the dividends will increase by 2
percent annually. The required return on this stock is 7 percent. What is the current
value per share?
a.
\$29.40
b.
\$30.70
c.
\$32.38
d.
\$33.66
e.
\$36.96

Page 15
NONCONSTANT GROWTH STOCK (INTERMEDIATE)
b
that,
72.
a.
Fido’s Foods just paid their annual dividend of \$1.20 per share. They are projecting
dividends of \$1.30, \$1.45, and \$1.70 over the next three years, respectively. After
the company expects to pay a constant dividend of \$1.50 a share. What is the
maximum amount you are willing to pay for one share of this stock if your required
return is 12 percent?
\$12.06
b.
\$12.42
c.
\$12.50
d.
\$16.67
e.
\$16.95
NONCONSTANT GROWTH STOCK (INTERMEDIATE)
b
after
73.
a.
EPG, Inc., announced today that their next annual dividend will be \$1.60 per share.
After that dividend is paid, the company is going to suspend dividends for 5 years
which a constant dividend of \$.70 share will be paid annually. The market rate of
return on this stock is 14 percent. What is the current value of this stock given this
announcement?
\$2.28
b.
\$3.68
c.
\$3.88
d.
\$6.28
e.
\$6.40
NONCONSTANT GROWTH STOCK (INTERMEDIATE)
a
74. Denver Deelights is expected to pay their first annual dividend three years from now.
That payment will be \$.50 a share. Starting in year four, the company will increase
the
dividend by 4 percent per year. The required return is 12 percent. What is the value
of this stock today?
a.
\$4.98
b.
\$5.14
c.
\$5.28
d.
\$6.50
e.
\$7.00
SUPERNORMAL GROWTH STOCK (INTERMEDIATE)
c
75. Lucky K Enterprises is growing by leaps and bounds. As a result, the company
expects
to increase their dividend to \$.80, \$1.70, and \$2.20 over the next three years,
respectively. After that, the dividend is projected to increase by 5 percent annually.
The last annual dividend the firm paid was \$.25 a share. What is the current value of
this stock if the required return is 18 percent?
a.
\$12.93
b.
\$13.68
c.
\$14.05
d.
\$16.58
e.
\$17.77

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