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BUSI 105 ? HW Chap8 Name:________________ Due Date: Nov 22, 2016
1. Preferred stock vs. common stock Which one of the following types of stock is defined
by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy
A. dual class stock
B. cumulative preferred stock
C. non-cumulative preferred stock
D. preferred stock
E. common stock 2. Stock valuation What is the model called that determines the present value of a stock
based on its next annual dividend, the dividend growth rate, and the applicable discount rate?
A. zero growth
B. dividend growth
C. capital pricing
D. earnings capitalization
E. discounted dividend 3. Dividend Growth Model Which one of the following is an underlying assumption of the
dividend growth model?
A. Dividends can grow faster than the required return.
B. A stock's value is equal to the discounted present value of the future cash flows which
C. A stock's value changes only when the required return changes.
D. Stocks that pay the same annual dividend have equal market values.
E. The dividend growth rate is inversely related to a stock's market price. 4. CDG Model The common stock of Auto Deliveries is expected to pay $1.35 per share
next year. The firm has established a pattern of increasing its dividends by 3 percent annually and
expects to continue doing so. If the rate of return on this stock is 8%, what is the stock price
today? BUSI 105 ? HW Chap8 Name:________________ Due Date: Nov 22, 2016
5. NCDG Model Thirsty Cactus Corp. just paid a dividend of $1.70 per share. The
dividends are expected to grow at 20 percent for the next three years and then level off to a
growth rate of 5 percent indefinitely. If the required return is 15 percent, what is the price of the
stock today? 6. Valuation using multiples The Sleeping Flower Co. has earnings of $1.75 per share. The
benchmark PE for the company is 18. What stock price would you consider appropriate? 7. Preferred stock valuation E-Eyes.com Bank just issued some new preferred stock. The
issue will pay an annual dividend of $27 in perpetuity, beginning 16 years from now. If the
market requires a return of 4.1 percent on this investment, how much does a share of preferred
stock cost today?
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