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[answered] BUSI 105 - HW Chap8 Name:________________ Due Date: Nov 22,


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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

 

proceedings?

 

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

 

it generates.

 

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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