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
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