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Exam 7: Equity Markets and Stock Valuation

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Question 1

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Shoreline Foods pays a constant annual dividend of $1.60 a share and currently sells for $28.50 a share.What is the rate of return?

A) 5.39 per cent
B) 5.61 per cent
C) 6.91 per cent
D) 6.63 per cent
E) 4.56 per cent

F) C) and E)
G) A) and B)

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Question 2

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What is the market called that allows shareholders to resell their shares to other investors?

A) inside
B) initial
C) proxy
D) secondary
E) primary

F) C) and D)
G) B) and E)

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Question 3

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The Queensland Border Company has just paid an annual dividend of $4.20 per share and is expected to pay annual dividends of $4.40 and $4.50 per share for the next two years,respectively.After that,the firm expects to maintain a constant dividend growth rate of 2 per cent per year.What is the value of this stock today if the required return is 14 per cent?

Manly Cove Manufacturing Company is listed on the ASX and has released information that details its expansion plans for the next decade.The information release indicates that next year's dividend will be increased to $1.10 and is expected to grow at a constant rate of 5% per annum thereafter.The required rate of return for this type of company is considered to be 13 per cent.Based on this information,what price would you expect the share to trade at after the release of the information?

Tellite Ltd,a telecommunication company,did not pay a dividend in the last financial year.However,the company has indicated that it expects to earn $1 per share in this financial year and to pay out 20% of these earnings in dividends.Financial analysts expect that Tellite's earnings per share and dividend per share will grow at a rate of 10% a year.The rate of return required by investors has been estimated at 12% per annum.Estimate the present value of the share.

The stock valuation process which determines the price of a stock by dividing the next period's dividend by the discount rate less the dividend growth rate is called the:

Fujian Tea company shares have a current price of $20 per share and paid a dividend of $1.40 per share during the year.Compute the dividend yield.

What is the name given to the model that computes the present value of a stock by dividing next year's annual dividend amount by the difference between the discount rate and the rate of change in the annual dividend amount?

The current price of a share is based:

The Australian Clean Energy Company is growing fast.It has just paid a maiden dividend of $1.05.Next year's dividend is forecast to grow by 20 per cent,followed by another 20 per cent growth in year two.The dividend in year three will grow by 10 per cent,followed by another 5 per cent in year four.From year five onwards dividends are expected to grow by 2 per cent per annum,indefinitely.If investors require a rate of return of 15 per cent for investments of this type what is the maximum price you would pay for a share in this company?

Atlas Home Supply has paid a constant annual dividend of $2.40 a share for the past 15 years.Yesterday,the firm announced the dividend will increase next year by 10 per cent and will stay at the level through year three,after which time the dividends will increase by 2 per cent annually.The required return on this stock is 12 per cent.What is the current value per share?

Kate could not attend the last shareholders' meeting and thus she granted the authority to vote on her behalf to the managers of the firm.Which one of the following terms is used to describe the method by which Kate's shares were voted?

The Market Place recently announced that it will pay its first annual dividend two years from today.The first dividend will be $0.50 a share with that amount doubling each year for the following two years.After that,the dividend is expected to increase by 4 per cent annually.What is the value of this stock today if the required return is 15 per cent?

The Pancake House pays a constant annual dividend of $1.25 per share.How much are you willing to pay for one share if you require a 15 per cent rate of return?

New Gadgets is growing at a very fast pace.As a result,the company expects to pay annual dividends of $0.55,0.80,and $1.10 per share over the next three years,respectively.After that,the dividend is projected to increase by 5 per cent annually.The last annual dividend the firm paid was $0.40 a share.What is the current value of this stock if the required return is 16 per cent?

Get Rich Quick,a funds management company,is considering an investment in a new pharmaceutical company.The company will be unable to pay a dividend until the end of year six but if a new product is successfully developed for sale at that time the dividends will be significant.The year-six dividend will be $8.00,the year-seven dividend will be $10.00 and dividends will grow by 8 per cent thereafter.If the required rate of return is 18 per cent,what is the maximum price Get Rich Quick should pay?

The Oz Printing Company's ordinary shares are trading at $32.60 a share based on a 14 per cent rate of return.What is the amount of the next annual dividend if the dividends are increasing by 2.5 per cent annually?

The Glass Ceiling paid an annual dividend of $2.20 per share last year.Management just announced that future dividends will increase by 2.8 per cent annually.What is the amount of the expected dividend in year five?

A firm expects to increase its annual dividend by 20 per cent per year for the next two years and by 15 per cent per year for the following two years.After that,the company plans to pay a constant annual dividend of $3.00 a share.The last dividend paid was $1.00 a share.What is the current value of this stock if the required rate of return is 12 per cent?

The stream of customer instructions to buy and sell securities is called the: