Question 1

Stocks X and Y have the following data.Assuming the stock market is efficient and the stocks are in equilibrium,which of the following statements is CORRECT?  XY Price $30$30 Expected growth (constant)  6%4% Required return 12%10%\begin{array} { l r r } & \mathrm { X } & \mathrm { Y } \	ext { Price } & \$ 30 & \$ 30 \	ext { Expected growth (constant)  } & 6 \% & 4 \% \	ext { Required return } & 12 \% & 10 \%\end{array} Price  Expected growth (constant)   Required return ​X$306%12%​Y$304%10%​ 
?

Accepted Answer

A)   Stock X has a higher dividend yield than Stock Y.
B)   Stock Y has a higher dividend yield than Stock X.
C)   One year from now,Stock X's price is expected to be higher than Stock Y's price.
D)   Stock X has the higher expected year-end dividend.
E)   Stock Y has a higher capital gains yield. F) C) and D)
G) B) and C)

Question 2

Based on the corporate valuation model,Gray Entertainment's total corporate value is $1,150 million.The company's balance sheet shows $120 million of notes payable,$300 million of long-term debt,$50 million of preferred stock,$180 million of retained earnings,and $800 million of total common equity.If the company has 30 million shares of stock outstanding,what is the best estimate of its price per share?

Accepted Answer

A)   $22.44
B)   $17.68
C)   $22.67
D)   $18.81
E)   $26.07F) B) and C)
G) A) and E)

Question 3

If D0 = $1.75,g (which is constant) = 3.6%,and P0 = $40.00,then what is the stock's expected total return for the coming year?

Accepted Answer

A)   6.42%
B)   8.13%
C)   9.92%
D)   7.64%
E)   7.48%F) A) and E)
G) C) and D)

Question 4

Which of the following statements is CORRECT,assuming stocks are in equilibrium?

Accepted Answer

A)   The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.
B)   Assume that the required return on a given stock is 13%.If the stock's dividend is growing at a constant rate of 5%,then its expected dividend yield is 5% as well.
C)   A stock's dividend yield can never exceed its expected growth rate.
D)   A required condition for one to use the constant growth model is that the stock's expected growth rate exceed its required rate of return.
E)   Other things held constant,the higher a company's beta coefficient,the lower its required rate of return.F) A) and C)
G) C) and D)

Question 5

The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year,and that dividend is expected to grow at a constant rate of 6.00% per year in the future.The company's beta is 1.70,the market risk premium is 5.50%,and the risk-free rate is 4.00%.What is the company's current stock price? Do not round intermediate calculations.

Accepted Answer

A)   $13.44
B)   $12.93
C)   $17.01
D)   $14.80
E)   $18.03F) B) and E)
G) A) and B)

Question 6

If a firm's stockholders are given the preemptive right,then they can call for a meeting to vote to replace the management.Without the preemptive right,dissident stockholders have to seek a change in management through a proxy fight.

Accepted Answer

A) True 
 B)False

Question 7

If a stock's market price exceeds its intrinsic value as seen by the marginal investor,then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Accepted Answer

A) True 
 B)False

Question 8

Mooradian Corporation's free cash flow during the just-ended year (t = 0) was $250 million,and its FCF is expected to grow at a constant rate of 5.0% in the future.Assume the firm has zero non-operating assets.If the weighted average cost of capital is 12.5%,what is the firm's total corporate value,in millions?

Accepted Answer

A)   $3,500
B)   $2,695
C)   $3,255
D)   $4,130
E)   $3,850F) C) and E)
G) A) and D)

Question 9

Based on the corporate valuation model,Wang Inc.'s total corporate value is $750 million.Its balance sheet shows $100 million notes payable,$200 million of long-term debt,$40 million of common stock (par plus paid-in-capital) ,and $160 million of retained earnings.What is the best estimate for the firm's value of equity (in millions) ?

Accepted Answer

A)   $423
B)   $450
C)   $531
D)   $522
E)   $360F) C) and E)
G) A) and E)

Exam 9: Stocks and Their Valuation

Correct Answer
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If a stock's market price exceeds its intrinsic value as seen by the marginal investor,then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Correct Answer
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Correct Answer
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If D₀ = $1.75,g (which is constant) = 3.6%,and P₀ = $40.00,then what is the stock's expected total return for the coming year?

Correct Answer
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Which of the following statements is CORRECT,assuming stocks are in equilibrium?

Correct Answer
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Correct Answer
verified

Correct Answer
verified

If a firm's stockholders are given the preemptive right,then they can call for a meeting to vote to replace the management.Without the preemptive right,dissident stockholders have to seek a change in management through a proxy fight.

Correct Answer
verified

Correct Answer
verified

Exam 9: Stocks and Their Valuation

Correct AnswerverifiedShow Answer

If a stock's market price exceeds its intrinsic value as seen by the marginal investor,then the investor will sell the stock until its price has fallen down to the level of the investor's estimate of the intrinsic value.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If D0 = $1.75,g (which is constant) = 3.6%,and P0 = $40.00,then what is the stock's expected total return for the coming year?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT,assuming stocks are in equilibrium?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm's stockholders are given the preemptive right,then they can call for a meeting to vote to replace the management.Without the preemptive right,dissident stockholders have to seek a change in management through a proxy fight.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If D₀ = $1.75,g (which is constant) = 3.6%,and P₀ = $40.00,then what is the stock's expected total return for the coming year?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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