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Chapter09-StockValuation9-11.Thestockvaluationmodelthatdeterminesthecurrentstockpricebydividingthenextannualdividendamountbytheexcessofthediscountratelessthedividendgrowthrateiscalledthe_____model.A.zerogrowthB.dividendgrowthC.capitalpricingD.earningscapitalizationE.differentialgrowth2.Nextyear'sannualdividenddividedbythecurrentstockpriceiscalledthe:A.yieldtomaturity.B.totalyield.C.dividendyield.D.capitalgainsyield.E.earningsyield.3.Therateatwhichastock'spriceisexpectedtoappreciate(ordepreciate)iscalledthe_____yield.A.currentB.totalC.dividendD.capitalgainsE.Earnings4.Aformofequitywhichreceivesnopreferentialtreatmentineitherthepaymentofdividendsorinbankruptcydistributionsiscalled_____stock.A.dualclassB.cumulativeC.deferredD.preferredE.common5.Paymentsmadebyacorporationtoitsshareholders,intheformofeithercash,stockorpaymentsinkind,arecalled:A.retainedearnings.B.netincome.C.dividends.D.redistributions.E.infusedequity.6.Theconstantdividendgrowthmodelis:A.generallyusedinpracticebecausemoststockshaveaconstantgrowthrate.B.generallyusedinpracticebecausethehistoricalgrowthrateofmoststocksisconstant.C.generallynotusedinpracticebecausemoststocksgrowatanonconstantrate.D.generallynotusedinpracticebecausetheconstantgrowthrateisusuallyhigherthantherequiredrateofreturn.E.basedontheassumptionDow30representsagoodestimateofthemarketindex.7.Theconstantdividendgrowthmodel:I.assumesthatdividendsincreaseataconstantrateforever.II.canbeusedtocomputeastockpriceatanypointoftime.III.statesthatthemarketpriceofastockisonlyaffectedbytheamountofthedividend.IV.considerscapitalgainsbutignoresthedividendyield.A.IonlyB.IIonlyC.IIIandIVonlyD.IandIIonlyE.I,II,andIIIonly8.Theunderlyingassumptionofthedividendgrowthmodelisthatastockisworth:A.thesameamounttoeveryinvestorregardlessoftheirdesiredrateofreturn.B.thepresentvalueofthefutureincomewhichthestockgenerates.C.anamountcomputedasthenextannualdividenddividedbythemarketrateofreturn.D.thesameamountasanyotherstockthatpaysthesamecurrentdividendandhasthesamerequiredrateofreturn.E.anamountcomputedasthenextannualdividenddividedbytherequiredrateofreturn.Chapter09-StockValuation9-29.Assumethatyouareusingthedividendgrowthmodeltovaluestocks.Ifyouexpectthemarketrateofreturntoincreaseacrosstheboardonallequitysecurities,thenyoushouldalsoexpectthe:A.marketvaluesofallstockstoincrease,allelseconstant.B.marketvaluesofallstockstoremainconstantasthedividendgrowthwilloffsettheincreaseinthemarketrate.C.marketvaluesofallstockstodecrease,allelseconstant.D.stocksthatdonotpaydividendstodecreaseinpricewhilethedividend-payingstocksmaintainaconstantprice.E.dividendgrowthratestoincreasetooffsetthischange.10.Latcher'sInc.isarelativelynewfirmthatisstillinaperiodofrapiddevelopment.Thecompanyplansonretainingallofitsearningsforthenextsixyears.Sevenyearsfromnow,thecompanyprojectspayinganannualdividendof$.25ashareandthenincreasingthatamountby3%annuallythereafter.Tovaluethisstockasoftoday,youwouldmostlikelydeterminethevalueofthestock_____yearsfromtodaybeforedeterminingtoday'svalue.A.4B.5C.6D.7E.811.TheRobertPhillipsCo.currentlypaysnodividend.Thecompanyisanticipatingdividendsof$0,$0,$0,$.10,$.20,and$.30overthenext6years,respectively.Afterthat,thecompanyanticipatesincreasingthedividendby4%annually.Thefirststepincomputingthevalueofthisstocktoday,istocomputethevalueofthestockwhenitreachesconstantgrowthinyear:A.3B.4C.5D.6E.712.Differentialgrowthreferstoafirmthatincreasesitsdividendby:A.threeormorepercentperyear.B.aratewhichismostlikelynotsustainableoveranextendedperiodoftime.C.aconstantrateoftwoormorepercentperyear.D.$.10ormoreperyear.E.anamountinexcessof$.10ayear.13.Thetotalrateofreturnearnedonastockiscomprisedofwhichtwoofthefollowing?I.currentyieldII.yieldtomaturityIII.dividendyieldIV.capitalgainsyieldA.IandIIonlyB.IandIVonlyC.IIandIIIonlyD.IIandIVonlyE.IIIandIVonly14.FredFlintlockwantstoearnatotalof10%onhisinvestments.HerecentlypurchasedsharesofABCstockatapriceof$20ashare.Thestockpaysa$1ayeardividend.ThepriceofABCstockneedsto_____ifFredistoachievehis10%rateofreturn.A.remainconstantB.decreaseby5%C.increaseby5%D.increaseby10%E.increaseby15%15.TheScottCo.hasageneraldividendpolicywherebyitpaysaconstantannualdividendof$1pershareofcommonstock.Thefirmhas1,000sharesofstockoutstanding.Thecompany:A.mustalwaysshowacurrentliabilityof$1,000fordividendspayable.B.isobligatedtocontinuepaying$1pershareperyear.C.willbedeclaredindefaultandcanfacebankruptcyifitdoesnotpay$1peryeartoeachshareholderonatimelybasis.D.hasaliabilitywhichmustbepaidatalaterdateshouldthecompanymisspayinganannualdividendpayment.E.muststilldeclareeachdividendbeforeitbecomesanactualcompanyliability.Chapter09-StockValuation9-316.Thevalueofcommonstocktodaydependson:A.theexpectedfutureholdingperiodandthediscountrate.B.theexpectedfuturedividendsandthecapitalgains.C.theexpectedfuturedividends,capitalgainsandthediscountrate.D.theexpectedfutureholdingperiodandcapitalgains.E.Noneoftheabove.17.Theclosingpriceofastockisquotedat22.87,withaP/Eof26andanetchangeof1.42.Basedonthisinformation,whichone