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This document is a copyright document. It is solely for the use of course roster students in this particular course. It is NOT for distribution outside the course environment in any manner, for any reason, to any individual or group; past, present, or future. Redistribution or further posting in any form is considered a violation of the UAS Code of Conduct. BA 325 – F13 – Quiz – Chapter 8 Page 1 of 4 1. Chester Financial Corp had a return on equity of 18%. The corporation’s earnings per share was $4.00, its dividend payout ratio was 30% and its profit-retention rate was 70%. If these relationships continue, what will be the Chester Financial Corp's internal growth rate? a. 5.4% b. 12.6% c. 70.0% d. 28.0% 2. CCT, Inc. expects its current annual $3 per share common stock dividend to remain the same for the foreseeable future. Therefore, the value of the stock to an investor with a required return of 15% is ________. a. $ 4.50 b. $ 3.53 c. $20.00 d. $45.00 3. Which of the following changes will make the value of a stock go up, other things being held constant? a. The required return decreases b. The required return increases c. In general, investors become more risk averse d. The growth rate of dividends decreases 4. Which of the following statements concerning the required rate of return on stocks is true? a. The higher an investor’s required rate of return, the higher the value of the stock. b. If risk is reduced, the required return will decrease because more investors are risk-averse. c. The required return on preferred stock is generally higher than the required return on common stock. d. The higher the risk, the higher the required return, other things being equal. 5. Butler Corp paid a dividend today of $3.50 per share. The dividend is expected to grow at a constant rate of 8% per year. If Butler Corp stock is selling for $75.60 per share, the stockholders’ expected rate of return is ________. a. 12.63% b. 12.53% c. 13.00% d. 14.38%
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This document is a copyright document. It is solely for the use of course roster students in this particular course. It is NOT for distribution outside the course environment in any manner, for any reason, to any individual or group; past, present, or future. Redistribution or further posting in any form is considered a violation of the UAS Code of Conduct. BA 325 – F13 – Quiz – Chapter 8 Page 2 of 4 6. What is the value of a preferred stock that pays a $3.50 dividend to an investor with a required rate of return of 9% (round your answer to the nearest $1)? a. $39 b. $23 c. $17 d. $31.50 7. How is preferred stock affected by a decrease in the required rate of return? a. the value of a share of preferred stock increases b. the dividend increases c. the dividend decreases d. the dividend yield increases 8. An example of the growth factor in common stock is ________. a. acquiring a loan to fund an investment in Asia b. retaining profits in order to reinvest into the firm c. issuing new stock to provide capital for future growth d. two strong companies merging together to increase their economy of scale 9. Linen Supply Co. paid a dividend of $3.25 on its common stock yesterday. The company's dividends are expected to grow at a constant rate of 5.5% indefinitely. If the required rate of return on this stock is 17.5%, compute the current value per share of Linen Supply Co. stock. a. $9.14 b. $27.08 c. $28.57 d. $31.82 10. Linen Supply Co.paid a dividend of $3.25 on its common stock yesterday. The company's dividends are expected to grow at a constant rate of 5.5% indefinitely. The required rate of return on this stock is 17.5%. You observe a market price of $27.50 for the stock. Should you purchase this stock? a. Yes, the market price is below the intrinsic value of the stock b. No, the market price is above the intrinsic value of the stock c. No, the growth rate in dividends is too far below the required return d. Yes, but only if you can keep the stock for at least 5 years 11. Wallace Industries paid a dividend of $1.85 on its common stock yesterday. The dividends of Wallace Industries are expected to grow at 8% per year indefinitely. If the risk free rate is 4% and investors' risk premium on this stock is 9%, estimate the value of Wallace Industries stock 2 years from now. a. $199.80 b. $46.61 c. $41.81 d. $38.11
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Solution is attached. Although you have not increased the price i... View the full answer

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Question 1
Chester Financial Corp had a return on equity of 18%. The corporation’s earnings per share was
$4.00, its dividend payout ratio was 30% and its profit-retention rate was 70%. If these...

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