63. Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.48, and $0.60 a share over the

63. Show Boat Dinner Theatres has paid annual
dividends of $0.32, $0.48, and $0.60 a share over the past three years,
respectively. The company now predicts that it will maintain a constant
dividend since its business has leveled off and sales are expected to remain
relatively flat. Given the lack of future growth, you will only buy this stock
if you can earn at least a 16 percent rate of return. What is the maximum
amount you are willing to pay for one share of this stock today?
A. $3.43
B. $3.75
C. $4.43
D. $4.69
E. $4.82

64. The common stock of Auto Deliveries sells for
$28.16 a share. The stock is expected to pay $1.35 per share next year when the
annual dividend is distributed. The firm has established a pattern of increasing
its dividends by 3 percent annually and expects to continue doing so. What is
the market rate of return on this stock?
A. 7.42 percent
B. 7.79 percent
C. 19.67 percent
D. 20.14 percent
E. 20.86 percent

65. The current dividend yield on Clayton’s Metals
common stock is 2.5 percent. The company just paid a $1.48 annual dividend and
announced plans to pay $1.54 next year. The dividend growth rate is expected to
remain constant at the current level. What is the required rate of return on
this stock?
A. 6.55 percent
B. 6.82 percent
C. 7.08 percent
D. 7.39 percent
E. 7.75 percent

66. Northern Gas recently paid a $2.80 annual dividend
on its common stock. This dividend increases at an average rate of 3.8 percent
per year. The stock is currently selling for $26.91 a share. What is the market
rate of return?
A. 13.88 percent
B. 14.03 percent
C. 14.21 percent
D. 14.37 percent
E. 14.60 percent

67. Denver Shoppes will pay an annual dividend of
$1.46 a share next year with future dividends increasing by 4.2 percent
annually. What is the market rate of return if the stock is currently selling
for $38.90 a share?
A. 6.55 percent
B. 7.13 percent
C. 7.46 percent
D. 7.95 percent
E. 8.29 percent

68. Great Lakes Health Care common stock offers an expected
total return of 9.2 percent. The last annual dividend was $2.10 a share.
Dividends increase at a constant 2.6 percent per year. What is the dividend
yield?
A. 3.75 percent
B. 4.20 percent
C. 4.55 percent
D. 5.25 percent
E. 6.60 percent

69. Electronics, Inc. common stock returned a nifty
22.68 percent rate of return last year. The dividend amount was $0.25 a share
which equated to a dividend yield of 0.84 percent. What was the rate of price
appreciation for the year?
A. 21.84 percent
B. 22.38 percent
C. 22.60 percent
D. 22.87 percent
E. 23.52 percent

70. Roy’s Welding Supplies common stock sells for $38
a share and pays an annual dividend that increases by 3 percent annually. The
market rate of return on this stock is 8.20 percent. What is the amount of the
last dividend paid?
A. $1.80
B. $1.86
C. $1.92
D. $1.98
E. $2.10

71. Douglass Gardens pays an annual dividend that is
expected to increase by 4.1 percent per year. The stock commands a market rate
of return of 12.6 percent and sells for $24.90 a share. What is the expected
amount of the next dividend?
A. $2.03
B. $2.12
C. $3.17
D. $2.20
E. $2.28

72. Atlas Mines has adopted a policy of increasing the
annual dividend on its common stock at a constant rate of 2.75 percent annually.
The firm just paid an annual dividend of $1.67. What will the dividend be six
years from now?
A. $1.88
B. $1.92
C. $1.97
D. $2.02
E. $2.05

73. A stock pays a constant annual dividend and sells
for $56.10 a share. If the market rate of return on this stock is 15.85
percent, what is the amount of the next annual dividend?
A. $7.67
B. $7.94
C. $8.21
D. $8.89
E. $10.30

74. You want to purchase some shares of Green World
stock but need a 15 percent rate of return to compensate for the perceived risk
of such ownership. What is the maximum you are willing to spend per share to
buy this stock if the company pays a constant $0.90 annual dividend per
share?
A. $5.40
B. $6.00
C. $6.90
D. $7.20
E. $7.80

75. Home Canning Products common stock sells for
$44.96 a share and has a market rate of return of 12.8 percent. The company
just paid an annual dividend of $1.04 per share. What is the dividend growth
rate?
A. 8.29 percent
B. 8.45 percent
C. 9.23 percent
D. 9.67 percent
E. 10.25 percent

76. Winter Time Adventures is going to pay an annual
dividend of $2.86 a share on its common stock next year. This year, the company
paid a dividend of $2.75 a share. The company adheres to a constant rate of
growth dividend policy. What will one share of this common stock be worth five
years from now if the applicable discount rate is 11.7 percent?
A. $43.45
B. $43.87
C. $44.15
D. $45.19
E. $47.00

77. Hightower Pharmacy just paid a $3.10 annual
dividend. The company has a policy of increasing the dividend by 3.8 percent
annually. You would like to purchase 100 shares of stock in this firm but
realize that you will not have the funds to do so for another four years. If
you require a 16 percent rate of return, how much will you be willing to pay
per share for the 100 shares when you can afford to make this investment?
A. $29.50
B. $30.62
C. $31.12
D. $31.78
E. $32.47

78. National Warehousing just announced it is
increasing its annual dividend to $1.18 next year and establishing a policy
whereby the dividend will increase by 3.25 percent annually thereafter. How
much will one share of this stock be worth 8 years from now if the required
rate of return is 9.5 percent?
A. $24.38
B. $25.68
C. $26.51
D. $27.02
E. $27.37

79. Shares of Hot Donuts common stock are currently
selling for $32.35. The last annual dividend paid was $1.10 per share and the
market rate of return is 10.7 percent. At what rate is the dividend
growing?
A. 7.06 percent
B. 8.67 percent
C. 10.42 percent
D. 12.60 percent
E. 14.10 percent

80. Combined Communications is a new firm in a rapidly
growing industry. The company is planning on increasing its annual dividend by
15 percent a year for the next 4 years and then decreasing the growth rate to
3.5 percent per year. The company just paid its annual dividend in the amount
of $0.20 per share. What is the current value of one share of this stock if the
required rate of return is 15.5 percent?
A. $1.82
B. $2.04
C. $2.49
D. $2.71
E. $3.05

81. KL Airlines paid an annual dividend of $1.42 a
share last month. The company is planning on paying $1.50, $1.75, and $1.80 a
share over the next 3 years, respectively. After that, the dividend will be
constant at $2 per share per year. What is the market price of this stock if
the market rate of return is 10.5 percent?
A. $15.98
B. $16.07
C. $18.24
D. $21.16
E. $24.10

82. Renew It, Inc., is preparing to pay its first
dividend. It is going to pay $0.45, $0.60, and $1 a share over the next three
years, respectively. After that, the company has stated that the annual
dividend will be $1.25 per share indefinitely. What is this stock worth to you
per share if you demand a 10.8 percent rate of return on stocks of this
type?
A. $6.67
B. $8.21
C. $10.14
D. $11.47
E. $12.03

83. Diets For You announced today that it will begin
paying annual dividends next year. The first dividend will be $0.12 a share.
The following dividends will be $0.15, $0.20, $0.50, and $0.60 a share annually
for the following 4 years, respectively. After that, dividends are projected to
increase by 4 percent per year. How much are you willing to pay to buy one
share of this stock today if your desired rate of return is 8.5 percent?
A. $9.67
B. $9.94
C. $10.38
D. $10.50
E. $10.86

84. Crystal Glass recently paid $3.60 as an annual
dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the
next 3 years, respectively. Beginning 4 years from now, the dividend is
expected to increase by 3.25 percent annually. What is one share of this stock
worth to you if you require a 12.5 percent rate of return on similar
investments?
A. $42.92
B. $43.40
C. $45.12
D. $45.88
E. $46.50

85. Langley Enterprises pays a constant dividend of
$0.60 a share. The company announced today that it will continue to pay the dividend
for another 2 years after which time all dividends will cease. What is one
share of this stock worth today if the required rate of return is 16.5
percent?
A. $0.92
B. $0.96
C. $1.04
D. $1.09
E. $1.20

86. Yesteryear Productions pays no dividend at the
present time. The company plans to start paying an annual dividend in the
amount of $0.40 a share for two years commencing four years from today. After
that time, the company plans on paying a constant $0.75 a share annual dividend
indefinitely. How much are you willing to pay to buy a share of this stock
today if your required return is 11.6 percent?
A. $3.78
B. $4.22
C. $4.37
D. $4.71
E. $4.98

87. Sweatshirts Unlimited is downsizing. The company
paid a $2.80 annual dividend last year. The company has announced plans to
lower the dividend by 25 percent each year. Once the dividend amount becomes
zero, the company will cease all dividends and go out of business. You have a
required rate of return of 15.5 percent on this particular stock given the
company’s situation. What are your shares in this firm worth today on a per
share basis?
A. $5.19
B. $6.91
C. $8.68
D. $19.29
E. $22.11

88. Dexter Metals, paid its first annual dividend
yesterday in the amount of $0.18 a share. The company plans to double each
annual dividend payment for the next 3 years. After that time, it plans to pay
$1.25 a share for 2 years than then pay a constant dividend of $1.60 per share
indefinitely. What is one share of this stock worth today if the market rate of
return on similar securities is 10.24 percent?
A. $12.32
B. $12.77
C. $13.20
D. $14.26
E. $14.79

89. Marshall Arts Studios just paid an annual dividend
of $1.36 a share. The firm plans to pay annual dividends of $1.40, $1.46, and
$1.58 over the next 3 years, respectively. After that time, the dividends will
be held constant at $1.60 per share. What is this stock worth today at a 9
percent discount rate?
A. $14.08
B. $14.30
C. $16.67
D. $16.79
E. $17.46

90. Home Care Providers is paying an annual dividend
of $1.10 every other year. The last dividend was paid two years ago. The firm
will continue this policy until 3 more dividend payments have been paid. One
year after the last dividend normal payment, the company plans to pay a final
liquidating dividend of $40 per share. What is the current market value of this
stock if the required return is 17 percent?
A. $18.92
B. $20.74
C. $23.16
D. $24.14
E. $24.53

91. Last year, Hansen Delivery paid an annual dividend
of $3.20 per share. The company has been reducing the dividends by 10 percent
annually. How much are you willing to pay to purchase stock in this company if
your required rate of return is 11.5 percent?
A. $1.92
B. $7.87
C. $13.40
D. $21.16
E. $24.08

92. Beatrice Markets is expecting a period of intense
growth and has decided to retain more of its earnings to help finance that
growth. As a result, it is going to reduce its annual dividend by 30 percent a
year for the next 2 years. After that, it will maintain a constant dividend of
$2.50 a share. Last year, the company paid $3.60 as the annual dividend per
share. What is the market value of this stock if the required rate of return is
14.5 percent?
A. $14.63
B. $16.70
C. $18.08
D. $19.61
E. $21.23

93. Bonnie’s Ice Cream is expecting its ice cream
sales to decline due to the increased interest in healthy eating. Thus, the
company has announced that it will be reducing its annual dividend by 2 percent
a year for the next five years. After that, it will maintain a constant dividend
of $2 a share. Last year, the company paid $2.20 per share. What is this stock
worth to you if you require a 9.5 percent rate of return?
A. $16.21
B. $17.48
C. $18.64
D. $19.09
E. $21.36
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94. J&J Foods wants to issue some 7 percent
preferred stock that has a stated liquidating value of $100 a share. The
company has determined that stocks with similar characteristics provide a 12.8
percent rate of return. What should the offer price be?
A. $37.26
B. $41.38
C. $48.20
D. $54.69
E. $62.60

95. The preferred stock of Rail Lines, Inc., pays an
annual dividend of $7.50 and sells for $59.70 a share. What is the rate of
return on this security?
A. 10.38 percent
B. 11.63 percent
C. 12.56 percent
D. 12.72 percent
E. 12.84 percent

96. Marie owns shares of Deltona Productions preferred
stock which she says provides her with a constant 14.3 percent rate of return.
The stock is currently priced at $45.45 a share. What is the amount of the
dividend per share?
A. $6.00
B. $6.25
C. $6.50
D. $6.60
E. $7.00

97. Zylo, Inc. preferred stock pays a $7.50 annual
dividend. What is the maximum price you are willing to pay for one share of
this stock today if your required return is 9.75 percent?
A. $32.26
B. $35.48
C. $72.68
D. $76.92
E. $79.81

Essay Questions

98. What are the primary differences and similarities
between NASDAQ and the NYSE?