In applying the constant dividend model with infinite horizon to price a stock for purchase, we assume the company will pay dividends forever and that we will hold onto our stock forever. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
An aging schedule of accounts receivable aids the financial manager in determining A) the receivables turnover. B) the amount of receivables that are past due. C) the average length of the discount period. D) the average age of the customers. ANSWER B
Date: September 19th, 2020
If we assume that a company will be in business forever and that it continues to pay dividends during its existence, then we have an annuity dividend stream. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: If we assume that the company will be in business forever, then we […]
Date: September 19th, 2020
In a stream of past dividends, the initial dividend is $1.25 and the most recent dividend is $1.80. The number of years between these two dividends (n) is 7 years. What is the average growth rate during this seven-year period? Use a calculator to determine your answer. A) 4.35% B) 5.35% C) 6.35% D) 7.35% […]
Date: September 19th, 2020
When estimating the annual growth rate of a dividend stream, we can use a short-cut to determining the average growth rate by ________. A) using just the first dividend in the stream and the time-value of money equation B) using just the last dividend in the stream and the time-value of money equation C) using […]
Date: September 19th, 2020
The constant growth dividend model requires that ________. A) the return rate r is greater than the growth rate g of the dividend stream B) the return rate g is greater than the growth rate r of the dividend stream C) the return rate r is lesser than the growth rate g of the dividend […]
Date: September 19th, 2020
The Commuter Solutions Company just paid an annual dividend of $1.12. If you expect a constant growth rate of 4% and have a required rate of return of 13%, what is the current stock price according to the constant growth dividend model? A) $12.44 B) $12.94 C) $13.46 D) There is not enough information to […]
Date: September 19th, 2020
You have a 5-year amortized loan with a nominal rate of 11% and annual payments of $541.14. What is the original (time 0 ) principal of the loan? A) $2,000.00 B) $2,705.70 C) $2,289.31 D) $1,678.86 E) $2,051.35 ANSWER A
Date: September 19th, 2020
Martian Airways Inc. has a 12% required rate of return. It does not expect to initiate dividends for 15 years, at which time it will pay $2.00 per share in dividends. At that time, Martian Airways expects its dividends to grow at 7% forever. What is an estimate of Martian Airways’ price in 15 years […]
Date: September 19th, 2020
Asset Expected Return Beta Stock A 9% 0.9 Stock B 11% 1.4 Risk-Free Asset 5% Consider the assets outlined in the table above. Which asset offers the best risk-return trade-off? A) Stock A B) Stock B C) The risk-free asset D) Either Stock A or Stock B as both have the same risk-return trade-off […]
Date: September 19th, 2020
