chapter-08-stock-valuation-3

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91. Last year, Hansen Delivery paid an annual dividend
of $3.20 per share. The company has been reducing the dividends by 10 percent
annually. How much are you willing to pay to purchase stock in this company if
your required rate of return is 11.5 percent?
A. $1.92
B. $7.87
C. $13.40
D. $21.16
E. $24.08

92. Beatrice Markets is expecting a period of intense
growth and has decided to retain more of its earnings to help finance that
growth. As a result, it is going to reduce its annual dividend by 30 percent a
year for the next 2 years. After that, it will maintain a constant dividend of
$2.50 a share. Last year, the company paid $3.60 as the annual dividend per
share. What is the market value of this stock if the required rate of return is
14.5 percent?
A. $14.63
B. $16.70
C. $18.08
D. $19.61
E. $21.23

93. Bonnie’s Ice Cream is expecting its ice cream
sales to decline due to the increased interest in healthy eating. Thus, the
company has announced that it will be reducing its annual dividend by 2 percent
a year for the next five years. After that, it will maintain a constant dividend
of $2 a share. Last year, the company paid $2.20 per share. What is this stock
worth to you if you require a 9.5 percent rate of return?
A. $16.21
B. $17.48
C. $18.64
D. $19.09
E. $21.36

94. J&J Foods wants to issue some 7 percent
preferred stock that has a stated liquidating value of $100 a share. The
company has determined that stocks with similar characteristics provide a 12.8
percent rate of return. What should the offer price be?
A. $37.26
B. $41.38
C. $48.20
D. $54.69
E. $62.60

95. The preferred stock of Rail Lines, Inc., pays an
annual dividend of $7.50 and sells for $59.70 a share. What is the rate of
return on this security?
A. 10.38 percent
B. 11.63 percent
C. 12.56 percent
D. 12.72 percent
E. 12.84 percent

96. Marie owns shares of Deltona Productions preferred
stock which she says provides her with a constant 14.3 percent rate of return.
The stock is currently priced at $45.45 a share. What is the amount of the
dividend per share?
A. $6.00
B. $6.25
C. $6.50
D. $6.60
E. $7.00

97. Zylo, Inc. preferred stock pays a $7.50 annual
dividend. What is the maximum price you are willing to pay for one share of
this stock today if your required return is 9.75 percent?
A. $32.26
B. $35.48
C. $72.68
D. $76.92
E. $79.81

Essay Questions

98. What are the primary differences and similarities
between NASDAQ and the NYSE?

99. Using the dividend growth model, explain why a
firm would be hesitant to reduce the growth rate of its dividends.

100. Kelley wants to purchase shares in Classic Kars,
Inc., but is torn between buying shares of common stock or shares of preferred
stock. What should he consider before determining the type of share he should
purchase?

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