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[answered] 1.A share of common stock just paid a dividend of $1.00. If


Can you please answer the following 29 MCQ Questions finance question.Only answer if your rating is 3 and above. I am willing to give extra tip of 5$ if there are less than 3 wrong answers.


1.A share of common stock just paid a dividend of $1.00. If the expected long-run growth

 

rate for this stock is 5.4%, and if investors' required rate of return is 13.9%, what is the

 

stock price? (Points : 0.83)

 

$11.04

 

$12.40

 

$13.76

 

$15.00

 

$9.42 2.Reddick Enterprises' stock currently sells for $40.50 per share. The dividend is projected

 

to increase at a constant rate of 5.50% per year. The required rate of return on the stock is

 

9.00%. What is the stock's expected price 3 years from today? (Points : 0.83)

 

$43.75

 

$58.02

 

$47.56

 

$53.74

 

$52.79 3.Schnusenberg Corporation just paid a dividend of $0.75 per share, and that dividend is

 

expected to grow at a constant rate of 6.50% per year in the future. The company's beta is

 

1.65, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is

 

the company's current stock price? (Points : 0.83)

 

$10.92

 

$7.99

 

$9.30

 

$10.11

 

$10.41 The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be

 

constant at 15% for 2 years, after which dividends are expected to grow at a rate of 6%

 

forever. Its required return is 12%. What is the best estimate of the current stock price?

 

(Points : 0.83) $42.76 $38.77 $36.24 $39.14 $36.60 The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected

 

to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.25, the

 

market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's

 

current stock price, P? (Points : 0.83)

 

$15.49

 

$16.66

 

$14.66

 

$19.32

 

$19.49 The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the

 

future. The company's beta is 1.20, the market risk premium is 5.50%, and the risk-free rate

 

is 4.00%. What is the company's current stock price?

 

(Points : 0.83) $22.83 $27.99 $27.17 $22.01 24.18 Gay Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year.

 

The stock sells for $21.50 per share, and its required rate of return is 10.5%. The dividend is

 

expected to grow at some constant rate, g, forever. What is the equilibrium expected growth

 

rate? (Points : 0.83) 4.87% 4.73% 5.34% 5.48% 4.69% Ackert Company's last dividend was $0.50. The dividend growth rate is expected to be

 

constant at 1.5% for 2 years, after which dividends are expected to grow at a rate of 8.0%

 

forever. The firm's required return (r) is 12.0%. What is the best estimate of the current stock price? (Points : 0.83) $10.28 $11.95 $10.04 $11.11 $13.98 Which of the following statements is CORRECT?

 

(Points : 0.83)

 

A major disadvantage of financing with preferred stock is that preferred

 

stockholders typically have supernormal voting rights.

 

Preferred stock is normally expected to provide steadier, more reliable income to

 

investors than the same firm?s common stock, and, as a result, the expected after-tax yield

 

on the preferred is lower than the after-tax expected return on the common stock

 

The preemptive right is a provision in all corporate charters that gives preferred

 

stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.

 

One of the disadvantages to a corporation of owning preferred stock is that 70% of

 

the dividends received represent taxable income to the corporate recipient, whereas

 

interest income earned on bonds would be tax free.

 

One of the advantages to financing with preferred stock is that 70% of the

 

dividends paid out are tax deductible to the issuer. Two constant growth stocks are in equilibrium, have the same price, and have the same

 

required rate of return. Which of the following statements is CORRECT? (Points : 0.83) The two stocks must have the same dividend per share.

 

If one stock has a higher dividend yield, it must also have a lower dividend growth

 

rate.

 

If one stock has a higher dividend yield, it must also have a higher dividend growth

 

rate.

 

The two stocks must have the same dividend growth rate.

 

The two stocks must have the same dividend yield. Which of the following statements is CORRECT? (Points : 0.83)

 

A change in a company?s target capital structure cannot affect its WACC.

 

WACC calculations should be based on the before-tax costs of all the individual

 

capital components.

 

Flotation costs associated with issuing new common stock normally reduce the

 

WACC.

 

If a company?s tax rate increases, then, all else equal, its weighted average cost of

 

capital will decline.

 

An increase in the risk-free rate will normally lower the marginal costs of both debt

 

and equity financing. A company?s perpetual preferred stock currently sells for $115.00 per share, and it pays an

 

$8.00 annual dividend. If the company were to sell a new preferred issue, it would incur a

 

flotation cost of 5.00% of the issue price. What is the firm's cost of preferred stock? (Points :

 

0.83)

 

7.32%

 

5.93% 6.08%

 

6.00%

 

7.18% O'Brien Inc. has the following data: rRF = 5.00%; RPM = 6.00%; and b = 1.10. What is the

 

firm's cost of equity from retained earnings based on the CAPM? (Points : 0.83)

 

11.83%

 

13.22%

 

11.25%

 

8.93%

 

11.60% Several years ago the Jakob Company sold a $1,000 par value, noncallable bond that now

 

has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond

 

currently sells for $950, and the company?s tax rate is 40%. What is the component cost of

 

debt for use in the WACC calculation? (Points : 0.83) 4.81% 4.49% 4.31% 5.48% 5.30% Which of the following statements is CORRECT? (Points : 0.83)

 

The regular payback method recognizes all cash flows over a project?s life.

 

The discounted payback method recognizes all cash flows over a project?s life, and

 

it also adjusts these cash flows to account for the time value of money.

 

The regular payback method was, years ago, widely used, but virtually no

 

companies even calculate the payback today.

 

The regular payback is useful as an indicator of a project?s liquidity because it gives

 

managers an idea of how long it will take to recover the funds invested in a project.

 

The regular payback does not consider cash flows beyond the payback year, but

 

the discounted payback overcomes this defect. Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the

 

following data: The yield on the company?s outstanding bonds is 7.75%, its tax rate is 40%,

 

the next expected dividend is $0.65 a share, the dividend is expected to grow at a constant

 

rate of 6.00% a year, the price of the stock is $19.00 per share, the flotation cost for selling

 

new shares is F = 10%, and the target capital structure is 45% debt and 55% common

 

equity. What is the firm's WACC, assuming it must issue new stock to finance its capital

 

budget? (Points : 0.83)

 

8.68%

 

7.93%

 

7.78%

 

8.76%

 

7.48% Question 17 of 30Daves Inc. recently hired you as a consultant to estimate the company?s

 

WACC. You have obtained the following information. (1) The firm's noncallable bonds mature

 

in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of

 

$1,075.00. (2) The company?s tax rate is 40%. (3) The risk-free rate is 4.50%, the market

 

risk premium is 5.50%, and the stock?s beta is 1.20. (4) The target capital structure consists

 

of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC? (Points :

 

0.83) 8.74% 8.13% 7.52% 9.18% 9.53% Question 18 of 30Assume a project has normal cash flows. All else equal, which of the

 

following statements is CORRECT? (Points : 0.83)

 

A project?s IRR increases as the WACC declines.

 

A project?s NPV increases as the WACC declines.

 

A project?s MIRR is unaffected by changes in the WACC.

 

A project?s regular payback increases as the WACC declines.

 

A project?s discounted payback increases as the WACC declines. Stern Associates is considering a project that has the following cash flow data. What is the

 

project's payback?

 

Year

 

0

 

Cash flows

 

-$750

 

(Points : 0.83)

 

2.17 years

 

2.49 years 1

 

$300 2

 

$310 3

 

$320 4

 

$330 5

 

$340 2.63 years

 

2.44 years

 

2.24 years Fernando Designs is considering a project that has the following cash flow and WACC data.

 

What is the project's discounted payback?

 

WACC: 10.00%

 

Year

 

0

 

Cash flows -$1,000

 

(Points : 0.83)

 

2.80 years 1

 

$500 2

 

$500 3

 

$500 1.91 years

 

2.09 years

 

2.35 years

 

2.26 years Masulis Inc. is considering a project that has the following cash flow and WACC data. What

 

is the project's discounted payback?

 

WACC:

 

Year

 

Cash flows

 

(Points : 0.83)

 

1.57 years

 

1.56 years

 

1.38 years

 

1.48 years 10.00%

 

0

 

-$700 1

 

$525 2

 

$485 3

 

$445 4

 

$405 1.54 years Barry Company is considering a project that has the following cash flow and WACC data.

 

What is the project's NPV? Note that a project's projected NPV can be negative, in which

 

case it will be rejected.

 

WACC:

 

Year

 

Cash flows

 

(Points : 0.83) 8.50%

 

0

 

-$1,100 1

 

$400 2

 

$390 3

 

$380 4

 

$370 5

 

$360 $403.86 $496.74 $319.05 $407.89 $488.66 Question 23 of 30Simms Corp. is considering a project that has the following cash flow

 

data. What is the project's IRR? Note that a project's projected IRR can be less than the

 

WACC or negative, in both cases it will be rejected.

 

Year

 

0

 

Cash flows -$1,400

 

(Points : 0.83)

 

-4.04%

 

-4.44%

 

-5.67%

 

-4.17% 1

 

$425 2

 

$425 3

 

$425 -4.53% Question 24 of 30Harry's Inc. is considering a project that has the following cash flow and

 

WACC data. What is the project's NPV? Note that if a project's projected NPV is negative, it

 

should be rejected.

 

WACC:

 

Year

 

Cash flows

 

(Points : 0.83) 14.50%

 

0

 

-$1,000 1

 

$300 2

 

$300 3

 

$300 4

 

$300 5

 

$300 $19.96 $20.85 $17.67 $20.67 $18.20 Question 25 of 30The cash flows associated with common stock are more difficult to

 

estimate than those related to bonds because stock has a residual claim against the

 

company versus a contractual obligation for a bond. (Points : 0.83)

 

True

 

False When a new issue of stock is brought to market, it is the marginal investor who determines True

 

False Question 27 of 30The total return on a share of stock refers to the dividend yield less any

 

commissions paid when the stock is purchased and sold.

 

(Points : 0.83)

 

True

 

False Preferred stock is a hybrid--a sort of cross between a common stock and a bond--in the sense

 

that it pays dividends that normally increase annually like a stock but its payments are

 

contractually guaranteed like interest on a bond. (Points : 0.83) True False Question 29 of 30The cost of perpetual preferred stock is found as the preferred's annual

 

dividend divided by the market price of the preferred stock. No adjustment is needed for

 

taxes because preferred dividends, unlike interest on debt, are not deductible by the issuing

 

firm. (Points : 0.83) True False

 


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