Chapter 8 The Valuation and Characteristics of Stock

35) Dynamic Industries paid a dividend of $1.65 on its common stock yesterday. The dividends of Wallace Industries are expected to grow at 9% per year indefinitely. If the risk free rate is 3% and investors' risk premium on this stock is 8%, estimate the value of Wallace Industries stock 2 years from now.

A) $106.84

B) $100.43

C) $91.81

D) $54.71

36) Southland Tours has net income of $2 million this year. The book value of Southland Tours common equity is $8 million dollars. The company's dividend payout ratio is 60% and is expected to remain this way. What is Southland Tours' internal growth rate?

A) 6%

B) 9%

C) 10%

D) 15%

37) Shackleford Corporation net income this year is $800,000. The company generally retains 35% of net income for reinvestment. The company's common equity currently has a book value of $5,000,000. They just paid a dividend of $1.37, and the required rate of return on this stock is 12%. Compute the value of this stock if dividends are expected to continue growing indefinitely at the company's internal growth rate.

A) $22.61

B) $11.42

C) $15.63

D) $4.35

38) Kinard's Kennels Inc. ROE is 20%. Their dividend payout ratio is 70%. The last dividend, just paid, was $2.00. If dividends are expected to grow by the company's internal growth rate indefinitely, what is the current value of Kinard's common stock if its required return is 18%?

A) $17.67

B) $16.89

C) $14.92

D) $11.52

39) Beaver Corporation stock is currently selling for $58.00. It is expected to pay a dividend of $5.00 at the end of the year. Dividends are expected to grow at a constant rate of 7.5% indefinitely. Compute the required rate of return on Beaver Corporation stock.

A) 12.48%

B) 15.65%

C) 13.64%

D) 16.12%

40) Waterfront Solutions, Inc. paid a dividend of $5.00 per share on its common stock yesterday. Dividends are expected to grow at a constant rate of 4% for the next two years, at which point the stock is expected to sell for $56.00. If investors require a rate of return on Waterfront's common stock of 18%, what should the stock sell for today?

A) $50.22

B) $48.51

C) $44.76

D) $40.22

41) If you expect NoDiv Corporation to sell for $75 per share in three years while paying no dividends along the way, and if your required rate of return is 16% per year, how much is the stock worth today?

A) $42.68

B) $48.05

C) $51.10

D) $74.64

42) Crandle's common stock is currently selling for $79.00. It just paid a dividend of $4.60 and dividends are expected to grow at a rate of 5% indefinitely. What is the required rate of return on Crandle's stock?

A) 11.11%

B) 11.76%

C) 12.2%

D) 14.21%

43) Distant Thunder, Inc. paid a dividend of $5.00 per share on its common stock yesterday. Dividends are expected to grow at a constant rate of 10% for the next two years, at which point the dividends will begin to grow at a constant rate indefinitely. If the stock is selling for $50 today and the required return is 15%, what it the expected annual dividend growth rate after year two?

A) 3.365%

B) 3.878%

C) 4.556%

D) 5.000%

44) Bevel Building Products, Inc., whose common stock is currently selling for $12 per share, is expected to pay a $1.80 dividend, and sell for $14.40 one year from now. What are the dividend yield, growth rate, and total rate of return, respectively?

A) 15% 20% 35%

B) 10% 5% 15%

C) 15% 12% 27%

D) 20% 15% 35%