Title Reading 41 Equity Valuation - Concepts and Basic Tools.pdf ✅

Question #1 of 141 Question ID: 1458316 What value would be placed on a stock that currently pays no dividend but is expected to start paying a $1 dividend five years from now? Once the stock starts paying dividends, the dividend is expected to grow at a 5 percent annual rate. The appropriate discount rate is 12 percent. A) $9.08. B) $8.11. C) $14.29. Question #2 of 141 Question ID: 1458379 A firm has an expected dividend payout ratio of 50 percent, a required rate of return of 18 percent, and an expected dividend growth rate of 3 percent. The firm's price to earnings ratio (P/E) is: A) 6.66. B) 2.78. C) 3.33. Question #3 of 141 Question ID: 1458386 All else equal, an increase in a company's growth rate will most likely cause its P/E ratio to: A) decrease. B) either increase or decrease. C) increase. Question #4 of 141 Question ID: 1458331
When a company's return on equity (ROE) is 12% and the dividend payout ratio is 60%, what is the implied sustainable growth rate of earnings and dividends? A) 4.0%. B) 4.8%. C) 7.8%. Question #5 of 141 Question ID: 1458297 The preferred stock of the Delco Investments Company has a par value of $150 and a dividend of $11.50. A shareholder's required return on this stock is 14%. What is the maximum price he would pay? A) $150.00. B) $54.76. C) $82.14. Question #6 of 141 Question ID: 1458408 An asset-based valuation model is most appropriate for a company that: A) has a high proportion of intangible assets among its total assets. B) is expected to remain profitable for the foreseeable future. C) is likely to be liquidated. Question #7 of 141 Question ID: 1458405 An enterprise value multiple is typically calculated as the ratio of enterprise value to a measure of: A) net income. B) pretax income. C) operating income.
Question #8 of 141 Question ID: 1458328 A firm is expected to have four years of growth with a retention ratio of 100%. Afterwards the firm's dividends are expected to grow 4% annually, and the dividend payout ratio will be set at 50%. If earnings per share (EPS) = $2.4 in year 5 and the required return on equity is 10%, what is the stock's value today? A) $13.66. B) $30.00. C) $20.00. Question #9 of 141 Question ID: 1458287 The rationale for using dividend discount models to value equity is that the: A) inputs are easily estimated and the model’s estimates are robust. B) intrinsic value of a stock is the present value of its future dividends. C) model works well for the finite period of time over which dividends are paid. Question #10 of 141 Question ID: 1458290 A preferred stock's dividend is $5 and the firm's bonds currently yield 6.25%. The preferred shares are priced to yield 75 basis points below the bond yield. The price of the preferred is closest to: A) $90.91. B) $5.00. C) $80.00. Question #11 of 141 Question ID: 1462905
Rock, Inc. maintains a policy of paying 30% of earnings to its investors in the form of dividends. Rock is expected to generate a return on equity of 9.3%. Rock's beta is 1.5. The market risk premium is 6% and the risk-free rate is 3%. Rock's required rate of return is closest to: A) 9.0%. B) 9.3%. C) 12.0%. Question #12 of 141 Question ID: 1462909 Robert Higgins is estimating the price-earnings (P/E) ratio that will be appropriate for an index at the end of next year. He has estimated that: Expected annual dividends will increase by 10% compared to this year. Expected earnings per share will increase by 10% compared to this year. The expected growth rate of dividends will be the same as the current estimate of 5%. The required rate of return will rise from 8% to 11%. Compared to the current P/E, the end-of-the-year P/E will be: A) 2% higher. B) 10% higher. C) 50% lower. Question #13 of 141 Question ID: 1458309 A stock is expected to pay a dividend of $1.50 at the end of each of the next three years. At the end of three years the stock price is expected to be $25. The equity discount rate is 16 percent. What is the current stock price? A) $17.18. B) $19.39. C) $24.92.