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1、CHAPTER 8Stock ValuationII.CONCEPTSVALUATION OF ZERO GROWTH STOCKc26.The James River Co. pays an annual dividend of $1.50 per share on its common stock. This dividend amount has been constant for the past 15 years and is expected to remain constant. Given this, one share of James River Co. stock:a.i
2、s basically worthless as it offers no growth potential.b.has a market value equal to the present value of $1.50 paid one year from today.c.is valued as if the dividend paid is a perpetuity.d.is valued with an assumed growth rate of 3 percent.e.has a market value of $15.00.VALUATION OF ZERO GROWTH ST
3、OCKe27.The common stock of the Kenwith Co. pays a constant annual dividend. Thus, the market price of Kenwith stock will:a.also remain constant.b.increase over time.c.decrease over time.d.increase when the market rate of return increases.e.decrease when the market rate of return increases.DIVIDEND Y
4、IELD VS. CAPITAL GAINS YIELDc28.The Koster Co. currently pays an annual dividend of $1.00 and plans on increasing that amount by 5 percent each year. The Keyser Co. currently pays an annual dividend of $1.00 and plans on increasing their dividend by 3 percent annually. Given this, it can be stated w
5、ith certainty that the _ of the Koster Co. stock is greater than the _ of the Keyser Co. stock.a.market price; market priceb.dividend yield; dividend yieldc.rate of capital gain; rate of capital gaind.total return; total returne.capital gains; dividend yieldDIVIDEND GROWTH MODELd29.The dividend grow
6、th model:I.assumes that dividends increase at a constant rate forever.II.can be used to compute a stock price at any point of time.III.states that the market price of a stock is only affected by the amount of the dividend.IV.considers capital gains but ignores the dividend yield.a.I onlyb.II onlyc.I
7、IIand IV onlyd.I and II onlye.I, II, and III onlyDIVIDEND GROWTH MODELb30.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 which the stock generates.
8、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.DIVIDEND GRO
9、WTH MODELc31.Assume that 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, all else constant.b.market values of all stocks
10、to remain constant as the dividend growth will offset theincrease in the market rate.c.market values of all stocks to decrease, all else constant.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
11、offset this change.NONCONSTANT GROWTHc32.Latchers Inc. 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 fromnow, the company projects paying an annual dividend of $.25 a share and then incr
12、easing 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 todays value.a.4b.5c.6d.7e.8NONCONSTANT GROWTHd33.The Robert Phillips Co. currently pays no dividend. The company is anti
13、cipating dividends of $0, $0, $0, $.10, $.20, and $.30 over the next 6 years, respectively. After that, the company anticipates increasing the dividend by 4 percent annually. The first step in computing the value of this stock today, is to compute the value of the stock in year:a.3.b.4.c.5.d.6.e.7.S
14、UPERNORMAL GROWTHb34.Supernormal growth refers to a firm that increases its dividend by:a.three or more percent per year.b.a rate which is most likely not sustainable over an extended period of time.c.a constant rate of 2 or more percent per year.d.$.10 or more per year.e.an amount in excess of $.10
15、 a year.DIVIDEND YIELD AND CAPITAL GAINSe35.The total rate of return earned on a stock is comprised of which two of the following?I.current yieldII.yield to maturityIII.dividend yieldIV.capital gains yielda.I and II onlyb.I and IV onlyc.II and III onlyd.II and IV onlye.IIIand IV onlyDIVIDEND YIELDc36.The total rate of return on a stock can be positive even when the price of the stock depreciates because of the:
