FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 7: Share Valuation: the Dividend-Discount Model

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

JRN Enterprises just announced that it plans to cut its dividend from $2.50 to $1.50 per share and use the extra funds to expand its operations. Prior to this announcement, JRN's dividends were expected to grow at 4% per year and JRN shares were trading at $25.00 per share. With the new expansion, JRN's dividends are expected to grow at 8% per year indefinitely. Assuming that JRN's risk is unchanged by the expansion, the value of a share of JRN after the announcement is closest to:

A) $27.50
B) $31.25
C) $25.00
D) $15.00

Correct Answer

verified

C

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Use the figure for the question(s) below -The above screen shot from Google Finance shows the basic stock information for the Commonwealth Bank of Australia after the close of business on 12 April 2010. How many shares of CBA had been traded on the ASX on this date?

A) 1.4 million
B) 89 billion
C) 1.3 billion
D) 59 billion

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

Use the figure for the question(s) below. -The above screen shot from Google Finance shows the price history of Progenics, a pharmaceutical company. In the time period shown, Progenics released information that an intravenously administered formulation of their leading product had failed in a Phase III clinical trial. In which of the months shown in the price history is this most likely to have occurred?

A firm can either pay its earnings out to its investors or it can keep them and reinvest them?

Kirkevue Industries pays out all its earnings as dividends and has a share price of $24. In order to expand, Kirkevue announces it will cut its dividend payments from $2.00 to $1.80 per share and reinvest the retained funds. What is the growth rate that should be achieved on the reinvested funds to keep the equity cost of capital unchanged?

Which of the following is NOT a way that a firm can increase its dividend?

You expect KT Industries (KTI) will have earnings per share of $3 this year and expect that they will pay out $1.50 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 15% and their equity cost of capital is 12%. The value of a share of KTI is closest to:

Which of the following situations is a potential source of cash flows for shareholders? I. The investor may be able to sell the shares at a future date. II. The firm in which the shares are held might pay out cash to shareholders in the form of dividends. III. The firm in which the shares are held might increase the value of its shares by reducing the total number of shares outstanding.

Rylan Industries is expected to pay a dividend of $5.20 per share for the next four years. If the current price of Rylan stock is $32.63, and Rylan's equity cost of capital is 14%, what price would you expect Rylan's stock to sell for at the end of the four years?

An ordinary share is a share in the ownership of a corporation, which carries rights to share in the profits of the firm through future dividend payments.

Chittenden Enterprises has 632 million shares on issue. It expects earnings at the end of the year to be $940 million. The firm's equity cost of capital is 10%. Chittenden pays out 30% of its earnings in total: 20% paid out as dividends and 10% used to repurchase shares. If Chittenden's earnings are expected to grow at a constant 4% per year, what is Chittenden's share price?

What are dividend payments?

On 15 June 2012, shares in CliffCo were trading at $15. Later that day the company announced that its profits for the six months to 30 June 2012 would be 5% lower than the corresponding period the year before. At the close of trading on 16 June 2012, the price of CliffCo shares had fallen to $12.71 per share, and by 19 June 2012, the price was $11.80 per share. On 3 November 2012 the price was $9.40 per share. How might an investor decide whether to buy or sell a share of CliffCo at this price?

Gremlin Industries will pay a dividend of $1.80 per share this year. It is expected that this dividend will grow by 4% per year each year in the future. The current price of a Gremlin share is $22.40. What is Gremlin's equity cost of capital?

A company is expected to pay a dividend of $3.20 per share every year indefinitely and the equity cost of capital for the company is 10%. What price would an investor be expected to pay per share next year?

Forecasting dividends requires forecasting the firm's future earnings?

You expect KT Industries (KTI) will have earnings per share of $3 this year and expect that they will pay out $1.50 of these earnings to shareholders in the form of a dividend. KTI's return on new investments is 15% and their equity cost of capital is 12%. The expected growth rate for KTI's dividends is closest to:

Coolibah Holdings is expected to pay dividends of $1.20 every six months for the next three years. If the current price of Coolibah shares is $22.40, and Coolibah's equity cost of capital is 16%, what price would you expect Coolibah's shares to sell for at the end of three years?

The Busby Corporation had a share price at the start of the year of $26.20, paid a dividend of $0.56 at the end of the year, and had a share price of $29.00 at the end of the year. Which of the following is closest to the rate of return of investments in companies with equal risk to The Busby Corporation for this period?

What is the relationship between the growth rate and the cost of equity implied in the dividend-discount model?