SampleTestCompiled306

# SampleTestCompiled306 - PRACTICE QUESTIONS FOR THE FINAL...

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PRACTICE QUESTIONS FOR THE FINAL EXAM MIDTERM 2 2. Leslie’s Unique Clothing Stores offers a common stock that pays an annual dividend of \$2.00 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn 12 percent return on your equity investments? a. \$10.00 b. \$13.33 c. \$16.67 d. \$18.88 e. \$20.00 Please use the following data for questions 3 and 4. BC ‘n D just paid their annual dividend of \$.60 a share. The projected dividends for the next five years are \$.30, \$.50, \$.75, \$1.00, and \$1.20, respectively. After that time, the dividends will be held constant at \$1.40. 3. What is this stock worth today at a 6 percent discount rate? a. \$20.48 b. \$20.60 c. \$21.02 d. \$21.28 e. \$21.43 4. What is this stock worth one year from today at a 6 percent discount rate? a. \$20.09 b. \$20.48 c. \$21.41 d. \$21.71 e. \$23.33 1

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5. Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of \$.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant \$1 a share dividend indefinitely. How much are you willing to pay to buy a share of this stock if your required return is 14 percent? a. \$4.82 b. \$5.25 c. \$5.39 d. \$5.46 e. \$5.58 6. The Merriweather Co. just announced that they are increasing their annual dividend to \$1.60 and establishing a policy whereby the dividend will increase by 3.5 percent annually thereafter. How much will one share of this stock be worth five years from now if the required rate of return is 12 percent? a. \$21.60 b. \$22.36 c. \$23.14 d. \$23.95 e. \$24.79 8. The Hatch Inc. is considering the following 3 independent projects. Projected cash flows for these ventures are as follows: Plan A Plan B Plan C Initial Initial Initial Outlay=\$3,600,000 Outlay=\$6,000,000 Outlay=\$3,500,000 Cash Flow: Cash Flow: Cash Flow: Yr 1=\$ -0- Yr 1=\$4,000,000 Yr 1=\$2,000,000 Yr 2= -0- Yr 2= 3,000,000 Yr 2= -0- Yr 3= -0- Yr 3= 2,000,000 Yr 3=2,000,000 Yr 4= -0- Yr 4= -0- Yr 4=2,000,000 Yr 5=\$7,000,000 Yr 5= -0- Yr 5=2,000,000 If The Hatch has a 9% required rate of return, what decision should be made regarding the projects above? a. Accept plan A b. Accept plan B c. Accept plan C d. Accept plans B and C e. Accept plans A, B and C 2
9. You are considering two independent projects both of which have been assigned a discount rate of 8 percent. Based on the profitability index, what is your recommendation concerning these projects? Project A Project B Year Cash Flow Year Cash Flow 0 -\$38,500 0 -\$42,000 1 \$20,000 1 \$10,000 2 \$24,000 2 \$40,000 a. You should accept both projects since both of their PIs are positive.

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SampleTestCompiled306 - PRACTICE QUESTIONS FOR THE FINAL...

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