# blaa - Problem starts at 29 through 53 29. What is the...

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Unformatted text preview: Problem starts at 29 through 53 29. What is the value of a share of stock of HOV Inc. to an investor who requires a 12 percent rate of return if HOV's current dividend is \$1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent. a. \$24.00 b. \$18.34 c. \$25.68 d. None of the above &amp;gt; c Problem type: Constant growth dividend valuation Solution: P0 = \$1.20(1 + 0.07) / (0.12 - 0.07) = \$25.68 30.The current price of Zebar is \$32.00 and the current dividend is \$.60. What is an investor's required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8 percent? a. 9.88% b. 11.38% c. 18.75% d. None of the above &amp;gt; d Problem type: Constant growth dividend valuation Solution: ke = \$0.60(1.08)/\$32 + 0.08 = 10.03% 31. Fast Wheels, Inc. expects to pay an annual dividend of \$0.72 next year. Dividends have been growing at a compound annual rate of 6 percent and are expected to continue growing at that rate. What is the value of a share of stock of Fast Wheels to an investor who requires a 14 percent rate of return? a. \$9.00 b. \$5.14 c. \$9.54 d. None of the above &amp;gt; a Problem type: Constant growth dividend valuation Solution: ke = \$0.72/(0.14 - 0.06) = \$9.00 32. What is the current value of the common stock of the Limited if you know the current dividend yield is 6.14%, the PE is 16, and the annual dividend is \$1.35? a. \$21.60 b. \$21.99 c. \$8.29 d. \$98.24 &amp;gt; b Topic: Understanding stock quotations Solution: Price = dividend/current yield = \$1.35/0.0614 = \$21.99 33. If the common stock of Comdisco pays an annual dividend of \$0.28, has a PE ratio of 11 and closed at 25, what are the current earnings per share? a. \$3.08 b. \$2.27 c. \$7.00 d. \$1.12 &amp;gt; b Problem type: Understanding stock quotations Solution: EPS = P/PE = \$25/11 = \$2.27 34. If American Brands pays an annual dividend of \$1.54, has a PE of 13, and its last closing price was 40, then its dividend yield must be a. 11.85% b. 3.85% c. 15.40% d. 3.25% &amp;gt; b Problem type: Understanding stock quotations Solution: \$1.54/\$40 = 0.0385 or 3.85% 35. Zero-Sum Enterprise expects to pay an annual dividend of \$0.48 next year. Dividends and earnings have been growing at a compound annual rate of 8 percent and are expected to continue growing at that rate. What is an investor's required rate of return on Zero-Sum if the current price is \$12? a. 12.3% b. 12.0% c. 10.0% d. 10.3% &amp;gt; b Problem type: Constant growth dividend valuation Solution: ke = \$0.48/\$12 + 0.08 = 12% 36. Assume Zero-Sum Enterprise pays an annual dividend of \$1.40 per share and that neither earnings nor dividends are expected to grow in the future. What is the value of Zero-Sum's stock to an investor who requires a 14 percent rate of return?...
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## This note was uploaded on 05/20/2011 for the course ECONS 111 taught by Professor Yo during the Spring '09 term at Nassau CC.

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