Chapters 5-8 Study Guide (Corrected from in class) (1)

Chapters 5-8 Study Guide (Corrected from in class) (1) -...

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Test Review Answers Chapter 5 6. Bavarian Sausage, Inc. has preferred stock outstanding. This stock pays a semiannual dividend of $1.25. If the next dividend is paid six months from now and the annual required return is 10%, what should be the value of the preferred stock? a. $6.25 b. $25 c. $12.50 d. $50.00 ANS: B 1.25/(.10/2) = 25 PTS: 1 DIF: M REF: 5.2 Valuing Preferred and Common Stock NAT: Analytic skills LOC: understand stocks and bonds 7. Bavarian Sausage just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock today. PTS: 1 DIF: E REF: 5.2 Valuing Preferred and Common Stock NAT: Analytic skills LOC: understand stocks and bonds 8. Bavarian Sausage is expected to pay a $1.57 dividend next year and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock today. PTS: 1 DIF: E REF: 5.2 Valuing Preferred and Common Stock NAT: Analytic skills LOC: understand stocks and bonds 9. Bavarian Sausage just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock in 5 years?
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Miller 17. Juice traditionally retains 65% of its earnings for future investments. Last year Miller’s return on equity was 15%. What is Miller’s growth rate? a. 15.00% b. 9.75% c. 5.25% d. 18.38% ANS: B .15(.65) = .0975 PTS: 1 DIF: E REF: 5.2 Valuing Preferred and Common Stock NAT: Analytic skills LOC: understand stocks and bonds
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