19) What would be the price you would like to pay today for a common stock if you expect to earn a 10% return from this stock, and expect to receive $1.5 dividends during the year, and sell the stock at $40 at the end of the year.

Multiple Choice

• a) $41.25
• b) $38.37
• c) $37.73
• d) $41.32

20) The market capitalization rate on the stock of Aberdeen Wholesale Company is 10%. Its expected ROE is 12%, and its expected EPS is $5. If the firm's plowback ratio is 50%, its P/E ratio will be _________.

Multiple Choice

• a) 8.33
• b) 12.5
• c) 19.23
• d) 24.15

21) Investors require a return of 12% from ABC, Inc. The company expect to have EPS of $1.25, which will be growing at a 5% rate per year. And the company's retention ratio is 40%. How much percentage higher the ABC's return on equity will be than its required rate of return?

Multiple Choice

• a) .5%
• b) 1%
• c) 1.5%
• d) 2%

22) What is Hulu's dividend growth rate if market expects the company's return on equity to be 15%, and its dividend payout ratio is 30%?

Multiple Choice

• a) 4.5%
• b) 10.5%
• C 15%
• d) 30%

23) A preferred stock will be worth ______________ today if it is expected to pay a fixed amount of $6 dividend per share every year, and investors require a return of 7% on this preferred stock.

Multiple Choice

• a) $33.50
• b) $65.50
• c) $85.71
• d) $114.29

24) Yeshin, Corp. has an expected return on equity of 25%. Its dividend growth rate will be __________ if it follows a policy of paying 30% of earnings in the form of dividends.

Multiple Choice

• a) 5%
• b) 15%
• c) 17.5%
• d) 45%

32) In general, the higher a firm's return on equity, the _________ the dividend payout ratio and the _________ the firm's growth rate of earnings.

Multiple Choice

• a) higher; lower
• b) higher; higher
• c) lower; lower
• d) lower; higher