Which of the following statements is incorrect?

Select one:

a.The constant growth model is appropriate for companies that have negative dividend growth rates.

b.Two firms with the same dividend and growth rate might not have the same stock price.

c.The constant growth model is appropriate for companies that the dividend growth rate is larger than its required rate of return on stock.

d.The constant growth model is inappropriate for companies that never pay dividend.

e.The constant growth model is appropriate for mature companies with a stable history of growth.

Which of the following statements is incorrect?

Select one:

a.Other things equal, the lower the dividends, the lower the stock price.

b.Other things equal, the higher the dividend growth rate, the higher the stock price.

c.Other things equal, the higher the market value of debt, the higher the value of equity.

d.Other things equal, the higher the required rate of return, the lower the stock price.

e.Other things equal, the investment holding period has no impact on the stock price.

Thames Inc.'s most recent dividend was $2.40 per share. The dividend is expected to grow at 6% per year.

The T-bill rate is 5% and the market risk premium is 9%.

The company's beta is 1.3.

What should be the expected price of the stock three years later?

Select one:

a.$72.14

b.$68.06

c.$60.57

d.$25.24

e.$28.32

Thames Inc.'s last dividend was $2 per share. The dividend is expected to grow at 5% per year.

The stock currently sells for $26.25 per share.

What is the estimated (predicted) rate of return of the stock today?

Select one:

a.12.6%

b.5.2%

c.13.0%

d.16.7%

e.11.0%

Use the information to answer the following questions.

The last dividend paid by Klein Company was $2.00.

Klein's growth rate is expected to be a constant 2% for 2 years, after which dividends are expected to grow at a rate of 8% forever.

Klein's required rate of return on equity is 13%.

What should be the current price of Klein's common stock?

Select one:

a.$42.25

b.$38.63

c.$33.33

d.$58.75

e.$50.16

Continued from previous question. What is the dividend yield of Klein's common stock in year 1?

Select one:

a.1.00%

b.4.65%

c.2.09%

d.5.28%

e.1.73%

Continued from previous question. You would expect the stock price to _____________ in one year.

Select one:

a.Increase by 7.72%

b.Increase by 9.91%

c.Increase by 4.2%

d.Decrease by 9.82%

e.Decrease by 2.09%

Use the information to answer the following questions. Analysts project the following free cash flows (FCFs) for Ezzell Corporation during the next 3 years, after which FCF is expected to grow at a constant 4% rate. Ezzell's WACC is 9%. Ezzell has $120 in debt and 40 shares of stock.

Time

Year 0

Year 1 $ -80

Year 2 $75

Year 3$30

Year 4 ?

FCF

What is Ezzell's value today?

Select one:

a.$729.63

b.$292.54

c.$933.22

d.$494.74

e.$561.2

Continued from previous question. What should be the current price of Ezzell's stock?

Select one:

a.$14.67

b.$ 8.22

c.$12.98

d.$ 9.37

e.$11.22

Assume that all interest rates in the economy decline from 10 percent to 9 percent. Which of the following bonds will have the smallest percentage increase in price?

Select one:

a.A 10-year zero coupon bond.

b.A 5-year bond with a 20% coupon.

c.A 10-year bond with a 10% coupon.

d.A 13-year zero coupon bond.

e.An 8-year bond with a 9% coupon.

Which of the following statements is most correct?

Select one:

a.All else equal, zero coupon bonds have highest reinvestment risk.

b.All else equal, bonds with 5% coupon rate have less price risk than bonds with 10% coupon rate.

c.All else equal, 20-year AAA bonds have more reinvestment risk than 3-year AAA bonds.

d.All else equal, 20-year T-bonds have less price risk than 5-year T-bonds.

e.All else equal, bonds with 10% coupon rate have more reinvestment risk than bonds with 5% coupon rate.