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Home / Questions / Common stock can be valued using the perpetuity valuation formula if the

Common stock can be valued using the perpetuity valuation formula if the

Common stock can be valued using the perpetuity valuation formula if the: 
A. discount rate is expected to remain constant.
B. dividends are not expected to grow.
C. growth rate in dividends is not constant.
D. investor does not intend to sell the stock.

38. What should be the price for a common stock paying $3.50 annually in dividends if the growth rate is zero and the discount rate is 8%? 
A. $22.86
B. $28.00
C. $42.00
D. $43.75

39. If next year's dividend is forecast to be $5.00, the constant-growth rate is 4%, and the discount rate is 16%, then the current stock price should be: 
A. $31.25
B. $40.00
C. $41.67
D. $43.33

40. What price would you expect to pay for a stock with 13% required rate of return, 4% rate of dividend growth, and an annual dividend of $2.50 which will be paid tomorrow? 
A. $27.78
B. $30.28
C. $31.10
D. $31.39

41. What constant-growth rate in dividends is expected for a stock valued at $32.00 if next year's dividend is forecast at $2.00 and the appropriate discount rate is 13%? 
A. 5.00%
B. 6.25%
C. 6.75%
D. 15.38%

42. ABC common stock is expected to have extraordinary growth of 20% per year for 2 years, at which time the growth rate will settle into a constant 6%. If the discount rate is 15% and the most recent dividend was $2.50, what should be the approximate current share price? 
A. $31.16
B. $33.23
C. $37.42
D. $47.77

43. A payout ratio of 35% for a company indicates that: 
A. 35% of dividends are plowed back for growth.
B. 65% of dividends are plowed back for growth.
C. 65% of earnings are paid out as dividends.
D. 35% of earnings are paid out as dividends.

44. What would be the approximate expected price of a stock when dividends are expected to grow at a 25% rate for 3 years, then grow at a constant rate of 5%, if the stock's required return is 13% and next year's dividend will be $4.00? 
A. $61.60
B. $62.08
C. $68.62
D. $79.44

45. What is the plowback ratio for a firm that has earnings per share of $12.00 and pays out $4.00 per share as dividends? 
A. 25.00%
B. 33.33%
C. 66.67%
D. 75.00%

46. What happens to a firm that reinvests its earnings at a rate equal to the firm's required return? 
A. Its stock price will remain constant.
B. Its stock price will increase by the sustainable growth rate.
C. Its stock price will decline unless dividend payout ratio is zero.
D. Its stock price will decline unless plowback rate exceeds required return.

Jan 09 2020 View more View Less

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