1 Which of the following statements is most correct for a zero growth stock? The stock's price one year from now should be the same as its current price. O The stock's dividend yield is larger than the stock's required rate of return. O The stock pays zero dividends. None of the above is correct. 2 Southwest Technology's common stock is selling at $30 per share today. Southwest just paid a $2 dividend. Its dividend is expected to grow by 5% in the coming year. The required rate of return on Southwest is 15%. Determine the common stock's dividend yield and capital gain yield for the first year. O 10%; 5% 7%; 8% 5%; 10% 6.7%; 8.3% 3 The P/E ratios of companies with negative earnings are O not meaningful undefined O negative None of the above. 4 If two firms have the same current dividend and the same expected growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium. O True. False. 5 According to the dividend discount model, the current stock price of a company is the sum of all future dividends the sum of the present values of all future dividends Ozero if the company does not pay dividends All of the above are correct. 6 of future net cash flows. The intrinsic value of a stock is the Osum O present value investment value future value 7 A company's P/E ratio would be affected by its Obook value Ogrowth opportunity O intrinsic value All of the above. 8 The Free Cash Flow Valuation Approach is most relevant for companies that Ohave zero growth O have more than two growth rates Opay no dividends Opay all earnings as dividends 9 A company's stock price will rise with an increase of its plowback ratio if O the company's ROE = its required rate of return O the company's ROE its required rate of return 10 Stock analysts just predicted that Hybrid Engine Company's earnings and dividends will grow at 20% each year for the next two years due to its new invention. After that, its growth rate will stabilize at 5% per year indefinitely. Assume that the rate of return on the stock is 14% and its last dividend was $1 per share. Determine the current price of the company's stock. $16.8 $15.1 $16.1 $13.8 11 Heavenly Hotels, Inc. will not pay any dividends for the next three years. Heavenly will pay its first dividend of $2.00 per share at the end of year four and its dividends will stay the same forever. The required rate of return on the company's common stock is 10%. What price should the stock be selling now? $20 $16 $12 $15 12 A constant-growing stock just paid $2 dividend and has a current market price of $30. Determine the stock's required rate of return if the company's constant growth rate is 5%. 5% 7% 12% 14% 13 In order to obtain a valid current stock price estimate when using the constant growth stock equation, the ROE must be constant. the dividend growth rate must be positive. the dividend payout ratio must stay the same. the dividend's growth rate must be smaller than the stock's required rate of return. 14 If two firms have the same current P/E ratio and the same EPS, their stocks must sell at the same current price or else the market will not be in equilibrium. True. False. O O O 15 E-Energy has just developed the most efficient electric battery for bicycles in the market. As a result, the firm is expected to earn free cash flow per share of $4 at the end of year 1 and $6 at the end of year 2, respectively. Then, E-Energy's growth rate will become 5% per year indefinitely. The weighted average cost of capital of the company is 15%. Determine the company's intrinsic value. $63 $69 $55.65 $66.41