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Exam 8: Net Present Value and Other Investment Criteria

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Question 31

Multiple Choice

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The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

A) pay an increasing dividend for a period of time and then cease paying dividends altogether.
B) increase the dividend amount every other year.
C) pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year.
D) grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.
E) pay increasing dividends for a fixed period of time, cease paying dividends for a period of time, and then commence paying increasing dividends for an indefinite period of time.

F) A) and B)
G) A) and C)

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Question 32

Multiple Choice

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Which one of the following statements applies to NASDAQ?

A) a partner with the London exchange
B) exchange floor is located in Chicago
C) single market maker for each listed security
D) broker's market
E) comprised of three separate markets

F) C) and D)
G) A) and E)

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Question 33

Multiple Choice

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Which one of following is the rate at which a stock's price is expected to appreciate?

Marie owns shares of Deltona Productions preferred stock which she says provides her with a constant 14.3 percent rate of return.The stock is currently priced at $45.45 a share.What is the amount of the dividend per share?

Galloway, Inc.has an odd dividend policy.The company has just paid a dividend of $7 per share and has announced that it will increase the dividend by $2 per share for each of the next 5 years, and then never pay another dividend.How much are you willing to pay per share today to buy this stock if you require a 15 percent return?

The counter area on the floor of the NYSE where a specialist operates is called a:

You own one share of a cumulative preferred stock which pays quarterly dividends.The firm has recently suffered some financial setbacks and has failed to pay the last two dividends.However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter.As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.

You want to be on the board of directors of Wisely Foods.Since you are the only shareholder that will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board.What is the type of voting called that requires this level of stock ownership to be successfully elected under these conditions?

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf.What is the granting of this authority called?

A company has two open seats, Seat A and Seat B, on its board of directors.There are 6 candidates vying for these 2 positions.There will be a single election to determine the winner of both open seats.As the owner of 100 shares of stock, you will receive one vote per share for each open seat.You decide to cast all 200 of your votes for a single candidate.What is this type of voting called?

Springboro Tech is a young start-up company.No dividends will be paid on the stock over the next 15 years, because the firm needs to plow back its earnings to fuel growth.The company will pay a $15 per share dividend in 16 years and will increase the dividend by 4 percent per year thereafter.What is the current share price if the required return on this stock is 8 percent?

Hardy Lumber has a capital structure which includes bonds, preferred stock, and common stock. Which of the following rights have most likely been granted to the preferred shareholders? I.right to share in company profits prior to other shareholders II.right to elect the corporate directors III.right to vote on proposed mergers IV.right to all residual income after the common dividends have been paid

The Blue Marlin is owned by a group of 5 shareholders who all vote independently and who all want personal control over the firm.What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?

Supernormal growth is a growth rate that:

Which one of the following players on the floor of the NYSE can be likened to part-time help because they are called to duty only when others are fully employed?

Ted, a wealthy individual, plans to purchase 30 percent of a firm's Class A shares of outstanding stock.He believes that such a purchase will allow him to control the firm by electing his candidates to the board over time as current board member's terms expire.The firm has a cumulative voting process.What factors should Ted be considering and why to ensure he can gain the control he desires?

Great Lakes Health Care common stock offers an expected total return of 9.2 percent.The last annual dividend was $2.10 a share.Dividends increase at a constant 2.6 percent per year.What is the dividend yield?

Which one of the following statements related to corporate dividends is correct?

What are the primary differences and similarities between NASDAQ and the NYSE?

Kelley wants to purchase shares in Classic Kars, Inc., but is torn between buying shares of common stock or shares of preferred stock.What should he consider before determining the type of share he should purchase?