Quiz 5

A firm cuts its dividend payout ratio. As a result you know that the firm’s earnings retention ratio will increase

A firm is planning on paying its first dividend of $2 in three years. Then dividends are expected to grow at 6% per year indefinitely. The stock’s required return is 14%. What is the intrinsic value of a share today? $19.24

A preferred share of Coquihalla Corporation will pay a dividend of $8.00 in the upcoming year, and every year thereafter, i.e., dividends are not expected to grow. You require a return of 7% on this stock. Using the constant growth DDM to calculate the intrinsic value, a preferred share of Coquihalla Corporation is worth $114.29

A stock has an intrinsic value of $15 and an actual stock price of $13.5. You know that this stock is under valued

Firms with higher expected growth rates tend to have P/E ratios that are higher than the P/E ratios of firms with lower expected growth rates.

Gagliardi Way Corporation has an expected ROE of 15%. If it pays out 30% of it earnings as dividends, its dividend growth rate will be 10.5%

Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2.00, a dividend in year 2 of $3.00, and a dividend in year 3 of $4.00. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth $67.95 today.

Rose Hill Trading Company is expected to have EPS in the upcoming year of $8.00. The expected ROE is 18.0%. An appropriate required return on the stock is 14%. If the firm has a plowback ratio of 70%, its dividend in the upcoming year should be $2.40

The Berkeley Ganja Co-op is a purveyor of fine herbal remedies. Their stock has had the following historical PE ratios from 2005-2009: 6.7, 7.2, 5.9, 6.9, and 7.1. As of 2010 their PE ratio is 8.4. The stock