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17.) Sure Tool Company just paid a dividend of $2, and the company is expected to grow at 5% indefinitely. The risk-free rate of return is 4%, and the expected market risk premium is 14%. The beta of Sure Tool Company's stock is 1.25. The current market price of Sure's stock should be $_____________.

Multiple Choice

A

24.50

B

17.52

C

12.73

D

12.12

E

Cannot be determined.

18.) Sure Tool Company is expected to pay a dividend of $2 in the upcoming year, and it is expected to grow at 5% indefinitely. The risk-free rate of return is 4%, and the expected return on the market portfolio is 12%. The beta of Sure Tool Company's stock is 1.25. What is the intrinsic value of Sure's stock today?

Multiple Choice

A.)

$20.60

B.)

$32.50

C.)

$12.12

D.)

$22.22

20.) Torque Corporation is expected to pay a dividend of $1.00 in the upcoming year. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected market risk premium is 13%. The stock of Torque Corporation has a beta of 1.2.

What is the return you should require on Torque's stock?

Multiple Choice

A.)

12.0%

B.)

14.6%

C.)

15.6%

D.)

20.6%

E.)

22.5%

21.) Torque Corporation just paid a dividend of $1.00. Dividends are expected to grow at the rate of 6% per year. The risk-free rate of return is 5%, and the expected return on the market portfolio is 13%. The stock of Torque Corporation has a beta of 1.2. What is the intrinsic value of Torque's stock?

Multiple Choice

A.)

$14.29

B.)

$14.60

C.)

$12.33

D.)

$11.62

22.) High Tech Chip Company is expected to have EPS in the coming year of $2.50. The expected ROE is 12.5%. An appropriate required return on the stock is 11%. If the firm has a dividend payout ratio of 70%, the growth rate of dividends should be

Multiple Choice

A.)

3.75%.

B.)

5.25%.

C.)

6.60%.

D.)

7.50%.

E.)

8.75%.

24.) A firm's earnings per share increased from $10 to $12, dividends increased from $4.00 to $4.80, and the share price increased from $80 to $90. Given this information, it follows that

Multiple Choice

A.)

the stock experienced an increase in the P/E ratio.

B.)

the firm had an increase in dividend yield.

C.)

the required rate of return increased.

D.)

the required rate of return decreased.

26.) Other things being equal, a low ________ would be most consistent with a relatively low growth rate of firm earnings.

Multiple Choice

A.)

dividend-payout ratio

B.)

degree of financial leverage

C.)

variability of earnings

D.)

Plowback ratio

28.) Sales Company expects to pay a $1.00 dividend per share in the coming year, and is expected to continue to pay out 60% of earnings as dividends for the foreseeable future. If the firm is expected to generate a 10% return on equity in the future, and if you require a 12% return on the stock, the value of the stock is

Multiple Choice

A.)

$17.67.

B.)

$13.00.

C.)

$12.50.

D.)

$15.67.

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