Questions 1-6
? If dividends on a common stock are expected to grow at a constant rate forever, and ifyou are told the most recent dividend paid, the dividend growth rate, and the appropriate discount rate today, you can calculate L the price of the stock today II. the dividend that is expected to be paid ten years from now III, the appropriate discount rate ten years from now a. I only b. I and II only c. I and III only d. II and III only e. I. II, and III 2. Which of the following statements about dividends is true? a. Dividends received are always added to taxable income of investors b. Dividends are the only source of return that investors earn on common stock investments c. The payment of dividends is at the discretion of the board of directors. d. The payment of dividends by the corporation is a tax-deductible business expense. e. A corporation can be sued for not paying undeclared common stock dividends. 3. The dividend on Simple Motors common stock will be $3 in 1 year, $4.25 in 2 years, and $6.00 in3 years. You can sell the stock for $100 in 3 years. If you require a 12% return on your investment, how much would you be willing to pay for a share of this stock today? a. $75.45 b. $77.24 c. $81.52 d. $85.66 e. S91.30 4. The stock of MTY Golf World currently sells for $90 per share. The firm has a constant dividend growth rate of6% and Just paid a dividend of S5094. If the required rate ofret mis i2% w the stock sell for one year from now? a. $ 90.00 b. 93.52 c. S 95.40 d. $ 99.80 e. $112.78 Killnum Corp. announces that the dividend for the next year will be $2.50 per share rather than the originally expected $1.50 per share. From then on, it is expected that dividends will resume their historical constant growth rate of 5% per year from the originally expected S1.50 per share for next 5. year. What would you expect to happen to the price of the stock? Ignore any tax effects. a. The price will likely double. b-The price will likely rise by 66.67%. C. The price will likely rise by exactly 50%. d. The price will remain unchanged. e. The price will likely rise by the present value of $1. McGonigal's Meats, Inc. currently pays no dividends. The firm plans to begin paying dividends in 3 years. The first dividend will be $1.50 and dividends will grow at 6% per year thereafter. Given a required return of 14%, what would you pay for the stock today? a. $13.42 b. $14.42 6. c. $16.37 d. $17.61 e $18.75
