1. The value of a common stock today depends on: a. Number of shares outstanding and the number of shareholders b.

The Wall Street analysts c. The expected future dividends and the discount rate d. Present value of the future earnings per share 2. The value of the stock a. Increases as the dividend growth rate increases b. Increases as the required rate of return decreases c. Increases as the required rate of return increases d. Both A and B 3. Which of the following formulas regarding earnings to price ratio is true: a. EPS/Po = r[1+(PVGO/Po] b. EPS/Po = r[1 - (PVGO/Po)] c. EPS/Po = [r+(PVGO/Po)] d. EPS/Po =[r(1+(PVGO/Po)]/r 4. If the Vol. 100s is reported as 10,233 in the Wall Street Journal quotation, then the trading volume for that day of trading is: a. 10,233 shares b. 102,330 shares c. 1,023,300 shares d. 10,233,000 shares 5. Great Lakes Co. is currently paying a dividend of $2.20 per share. The dividends are expected to grow at 25% per year for the next four years and then grow 5% per year thereafter. Calculate the expected dividend in year 6. a. $5.37 b. $2.95 c. $5.92 d. $8.39 6. Mcom Co. is expected to pay a dividend of $4 per share at the end of year one and the dividends are expected to grow at a constant rate of 4% forever. If the current price of the stock is $25 per share calculated the required rate of return or the market capitalization rate for the firms' stock. a. 4% b. 16% c. 20% d. None of the above. 7. MJ Co. pays out 60% of its earnings as dividends. Its return on equity is 20%. What is the stable dividend growth rate for the firm? a. 3% b. 5% c. 8% d. 12% 8. The NetTech Co. has just paid a dividend of $1 per share. The dividends are expected to grow at 20% per year for the next three years and at the rate of 5% per year

thereafter. If the required rate of return on the stock is 15%(APR), what is the current value of the stock? a. $18.14 b. $15.20 c. $12.51 d. None of the above 9. Y2K Technology Corporation has just paid a dividend of $0.40 per share. The dividends are expected to grow at 30% per year for the next two years and at 5% per year thereafter. If the required rate of return in the stock is 15% (APR), calculate the current value of the stock. a. $1.420 b. $6.33 c. $5.63 d. None of the above 10. Parcel Corporation is expected to pay a dividend of $5 per share next year, and the dividends pay out ratio is 50%. If the dividends are expected to grow at a constant rate of 8% forever and the required rate of return on the stock is 13%, calculate the present value of the growth opportunity. a. $23.08 b. $64.10 c. $100 d. None of the above. ANSWERS: 1. C 2. D 3. B 4. Answer: C Solution: Trading volume = 10,233 * 100 = 1,023,300 5. Answer: A Solution: Div6=2.2 * (1.25^4) * (1.05^2) = 5.92 6. Answer: C Solution: r = (4/25) + 0.04 = 20% 7. Answer: C Solution: g = (1 - 0.6)*20 = 8% 8. Answer: B Solution: P = (1.2/1.15) + (1.44/1.15^2) + (1.728/1.15^3) + (1.8144/((1.15^3)/ (0.15 0.05)) = 15.20 9. Answer: B Solution: Po = [(0.4 *1.3)/1.15] + [(0.4 * 1.3^2)/(1.15^2)] + [(0.4 * 1.3^2*1.06)/ ((1.15^2 * (0.15 0.05))] = $6.33 10. Answer: A Solution: EPS= (5/0.5)=$10; No Growth Value = 10/0.13 = 76.92 Growth Value = 5/(0.13-0.08) = 100 PVGO = 100-76.92 = 23.08