1) A company recently paid out a $4 per share dividend on their stock. Dividends are projected...
Question:
1) A company recently paid out a $4 per share dividend on their stock. Dividends are projected to grow at a constant rate of 5% into the future, and the required return on investment is 8%. After one year, the holding period return to an investor who buys the stock right now will be:
A. 5%
B. 3%
C. 8%
D. 13%
2) A company recently paid out a $2 per share dividend on their stock. Dividends are projected to grow at a constant rate of 4% into the future, and the required return on investment is 6%. After one year, the holding period return to an investor who buys the stock right now will be:
A. 2%
B. 4%
C. 6%
D. 10%
3) A company recently paid out a $2 per share dividend on their stock. Dividends are projected to grow at a constant rate of 3% into the future, and the required return on investment is 10%. The current price of a share of stock is:
A. $ 28.57
B. $ 2.00
C. $ 20.00
D. $ 29.43
4) A firm with return on equity (ROE) much greater than its cost of capital:
A. is likely to have a relatively high P/E
B. should pay out earnings to investors as dividends rather than retain earnings for growth
C. will generally have a lower price per share than other companies in the market
D. is implementing negative NPV projects within the firm
5) A company recently paid out a $4 per share dividend on their stock. Dividends are projected to grow at a constant rate of 5% into the future, and the required return on investment is 8%. The percentage change in the stock price from one period to the next is likely to be:
A. 5%
B. 3%
C. 8%
D. 13%
6) The constant growth model for valuing equity can NOT be used if:
A. a company is not paying any dividends, and is not expected to in the near future.
B. a company’s dividend growth rate is greater than its expected return
C. both (A) and (B)
D. none of the above
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt