Question
1. We observe a firm that just paid a quarterly dividend of $0.62. What should be the price of this stock if the required rate
1. We observe a firm that just paid a quarterly dividend of $0.62. What should be the price of this stock if the required rate of return is 16% APR compounded quarterly, and the analyst believes the ROE and retention ratio will remain constant at 24% and 45%, respectively?
2. Many textbooks indicate that the value of a share of common stock can be thought of as it's "zero-growth" value plus the Net Present Value of all future growth opportunities:
P = d 1 r + N P V o f f u t u r e i n v e s t m e n t s p e r s h a r e
The term "NPV" represents the present value of positive cash flows that accrue to shareholders from these future investments less the present value of the cost of the investments. This equation is not exactly written like this in our notes, but given this form, it indicates that shareholders expect firm managers to take what actions on their behalf:
(Select all that are true).
Group of answer choices
invest in only opportunities with NPV > 0.
invest in only opportunities with NPV > 0.
invest in only opportunities with NPV > 0.
invest in only opportunities with NPV > 0.
3. When viewing the P/E ratio through the lens of the dividend discount model, we see that P/E ratios will increase with which factors, all else constant?
Select all that are true.
Group of answer choices
required return on the stock
dividend payout rate
earnings growth rate
discount rate
4. As a common stock shareholder, which cash flows would you possibly receive?
Group of answer choices
dividends
capital gains
the firm's residual cash flows
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