Corporate Finance - Final Exam Questions and Answers 2022; Verified correctly

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Corporate Finance - Final Exam Questions and Answers 2022; Verified correctly 1) Which one of these applies to the dividend growth model of stock valuation? A) The dividend must be for the same ti... me period as the stock price. B) The growth rate must be less than the discount rate. C) The rate of growth must be positive. D) The model cannot be applied if the growth rate is zero. E) The dividend amount must be constant over time. -Answer- B 2) If a stock pays a constant annual dividend then the stock can be valued using the: A) fixed coupon bond present value formula. B) present value of an annuity due formula. C) payout ratio formula. D) present value of an ordinary annuity formula. E) perpetuity present value formula. -Answer- E 3) In the formula, P3 = Dx/(R − g), the dividend is for period: A) two. B) five. C) four. D) three. E) one. -Answer- C 4) The differential growth model of stock valuation: A) makes allowance for one change in the discount rate. B) uses DT + 1 as the dividend amount throughout the formula. C) requires g2 to be less than the discount rate. D) assumes the second growth rate will be zero. E) assumes the first growth rate will be zero. -Answer- C 5) The constant dividend growth model: A) is more complex than the differential growth model. B) requires the growth period be limited to a set number of years. C) is never used because firms rarely attempt to maintain steady dividend growth. D) can be used to compute a stock price at any point in time. E) most applies to stocks with differential growth rates. -Answer- D 6) The underlying assumption of the dividend growth model is that a stock is worth: A) the same amount to every investor regardless of their desired rate of return. B) the present value of the future income that the stock is expected to generate. C) an amount computed as the next annual dividend divided by the market rate of return. D) the same amount as any other stock that pays the same current dividend and has the same required rate of return. E) an amount computed as the next annual dividend divided by the required rate of return. -Answer- B 7) Assume you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the: A) market values of all stocks to increase. B) market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate. C) market values of all stocks to decrease. D) stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price. E) dividend growth rates to increase to offset this change. -Answer- C 8) Latcher's is a relatively new firm that is still in a period of rapid development. The company plans on retaining all of its earnings for the next six years. Seven years from now, the company projects paying an annual dividend of $.25 a share and then increasing that amount by 3 percent annually thereafter. To value this stock as of today, you would most likely determine the value of the stock ________ years from today before determining today's value. A) 4 B) 5 C) 6 D) 7 E) 8 -Answer- C 9) Phillips Co. currently pays no dividend. The company is anticipating dividends of $.02, $.05, $.10, $.20, and $.30 over the next 5 years, respectively. After that, the company anticipates increasing the dividend by 3.5 percent annually. One common step in computing the value of this stock today is to compute the value of: A) P1. B) P3. C) P4. D) P5. E) P6. -Answer- D 10) Next year's annual dividend divided by the current stock price is called the: A) yield to maturity. B) total yield. C) dividend yield. D) capital gains yield. E) earnings yield. -Answer- C 11) The rate at which a stock's price is expected to appreciate (or depreciate) is called the ________ yield. A) current B) total C) dividend D) capital gains E) earnings -Answer- D 12) For a firm with a constant payout ratio, the dividend growth rate can be estimated as: A) Payout ratio × Return on equity. B) Return on assets × Retention ratio. C) Return on equity × (1 + Retention ratio). D) Payout ratio × Return on assets. E) Return on retained earnings × Retention ratio. -Answer- E [Show More]

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