FIN_3716_Quiz3

# FIN_3716_Quiz3 - a \$3,571,088 b \$4,698,788 c \$5,137,338 d...

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FIN 3716 Quiz #3 1. Bottle Top, Inc. recently announced they will pay their first annual dividend next year in the amount of \$0.75 a share. The dividend will be increased by 4 percent annually thereafter. How much are you willing to pay for one share of this stock if you require a 10 percent rate of return? a. \$12.50 b. \$13.83 c. \$21.58 d. \$22.91 2. The common stock of the Paper Co. is selling for \$41.40 a share and offers an 8.2 percent rate of return. The dividend growth rate is constant at 4 percent. What is the expected amount of the next dividend? a. \$1.67 b. \$1.74 c. \$1.81 d. \$1.90 3. The Ward Co. has 500,000 shares of stock outstanding with a market price of \$37.59 a share. The company has three open positions on their board of directors. You want to assure yourself of winning one of those seats assuming that no one else votes for you. The company uses cumulative voting. How much will it cost you to purchase sufficient shares to ensure your election assuming that you currently do not own any shares?

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Unformatted text preview: a. \$3,571,088 b. \$4,698,788 c. \$5,137,338 d. \$6,265,038 4. Hardware, Inc. recently announced their annual dividend will be increasing to \$3.15 a share for next year with annual increases in the dividend amount of 1.15 percent thereafter. You require a 13.5 percent rate of return on this relatively risky security. How much are you willing to pay for one share of this stock? a. \$25.51 b. \$25.80 c. \$25.93 d. \$26.04 5. You would like to earn a 9.5 percent rate of return on a 9 percent preferred stock. How much are you willing to pay for 10 shares? (face value =10) a. \$94.74 b. \$105.56 c. \$947.37 d. \$1,055.56 Question #3 is dropped. FIN 3716 Quiz #3 Solutions 1. a \$12.50 .04 .10 \$0.75 P = − = 2. b 04 . 082 . D 40 . 41 \$ 1 − = ; D 1 = \$1.74 3. b \$4,698,788 \$37.59 1 1 3 500,000 needed investment Total = × + + = ⎟ ⎠ ⎞ ⎜ ⎝ ⎛ 4. a 51 . 25 \$ 0115 . 135 . 15 . 3 \$ P = − = 5. a 4737 . 9 \$ 095 . 10 \$ 09 . P = × = Cost of 10 shares = \$9.4737 × 10 = \$94.737...
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FIN_3716_Quiz3 - a \$3,571,088 b \$4,698,788 c \$5,137,338 d...

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