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Prep for exam 3 Question and answers rated A+ Leslie's Unique Clothing Stores offers a common stock that pays an annual dividend of $2.60 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock if you want to earn a return of 13...

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  • August 12, 2024
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  • 2024/2025
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Prep for exam 3- finn
Leslie's Unique Clothing Stores offers a common stock that pays an annual
dividend of $2.60 a share. The company has promised to maintain a constant
dividend. How much are you willing to pay for one share of this stock if you
want to earn a return of 13.80 percent on your equity investments? - correct
answer ✔P = $2.60/.1380 = $18.84


Knightmare, Inc., will pay a dividend of $5.55, $9.65, and $12.85 per share for
each of the next three years, respectively. The company will then close its
doors. Investors require a return of 9.9 percent on the company's stock. What
is the current stock price? - correct answer ✔P = $5.55/(1 + .099) + $9.65/(1
+ .099)2 + $12.85/(1 + .099)3P = $22.72


CDB stock is currently priced at $65. The company will pay a dividend of
$4.89 next year and investors require a return of 11.2 percent on similar
stocks. What is the dividend growth rate on this stock? - correct answer
✔Dividend yield = $4.89/$65 = 7.52% Dividend growth rate = 11.20% − 7.52%
= 3.68%


Santa Klaus Toys just paid a dividend of $4.00 per share. The required return
is 11.4 percent and the perpetual dividend growth rate is 3.3 percent. What
price should this stock sell for five years from today? - correct answer ✔P =
[$4.00(1 + .033)6]/(.114 − .033)P = $60.00


Symon's Suppers Co. has announced that it will pay a dividend of $4.35 per
share one year from today. Additionally, the company expects to increase its
dividend by 4.4 percent annually. The required return on the company's stock
is 11.2 percent. What is the current share price? - correct answer ✔P0 =
$4.35/(.112 - .044) = $63.97

, Kindzi Co. has preferred stock outstanding that is expected to pay an annual
dividend of $3.97 every year in perpetuity. If the required return is 4.04
percent, what is the current stock price? - correct answer ✔P0 = $3.97/.0404
= $98.27


The common stock of Eddie's Engines, Inc., sells for $36.23 a share. The
stock is expected to pay a dividend of $2.20 per share next year. Eddie's has
established a pattern of increasing their dividends by 4.3 percent annually and
expects to continue doing so. What is the market rate of return on this stock? -
correct answer ✔R = $2.20/$36.23 + .043 = 0.1037, or 10.37%


New Gadgets, Inc., currently pays no dividend but is expected to pay its first
annual dividend of $5.35 per share exactly 10 years from today. After that, the
dividends are expected to grow at 3.8 percent forever. If the required return is
12.2 percent, what is the price of the stock today? - correct answer ✔P9 =
$5.35/(.122 − .038) = $63.69 P0 = $63.69/1.1229P0 = $22.60


Michael's, Inc., just paid $1.90 to its shareholders as the annual dividend.
Simultaneously, the company announced that future dividends will be
increasing by 4.2 percent. If you require a rate of return of 8.5 percent, how
much are you willing to pay today to purchase one share of the company's
stock? - correct answer ✔P0 = [$1.90 × (1 + .042)]/(.085 - .042) = $46.04


Keidis Industries will pay a dividend of $3.95, $5.05, and $6.25 per share for
each of the next three years, respectively. In four years, you believe that the
company will be acquired for $57.00 per share. The return on similar stocks is
11.1 percent. What is the current stock price? - correct answer ✔P =
$3.95/(1 + .111) + $5.05/(1 + .111)2 + $6.25/(1 + .111)3 + $57.00/(1 + .111)4P
= $49.62


You purchased GARP stock one year ago at a price of $65.93 per share.
Today, you sold your stock and earned a total return of 18.55 percent. The
stock paid dividends of $2.68 per share over the year. What was the capital

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