# Test Review 2

**Topics:**Net present value, Internal rate of return, Time value of money

**Pages:**75 (12299 words)

**Published:**December 10, 2012

Multiple Choice Questions

1.If the Vol. 100s is reported as 10,233 in the Wall Street Journal quotation, then the trading volume for that day of trading is: A)10,233 shares

B)102,330 shares

C)1,023,300 shares

D)10,233,000 shares

Answer: C

Type: Medium

Page: 60

Response: Trading volume = 10,233 * 100 = 1,023,300

2.The dividend yield reported as Yld. % in The Wall Street Journal quotation is calculated as follows: A)(dividends / hi)

B)(dividends / lo)

C)(dividends / close)

D)None of the above

Answer: C

Type: Medium

Page: 60

3.The Wall Street Journal quotation for a company has the following values: Div: 2.28, PE: 19, Close: 75.30. Calculate the dividend pay out ratio for the company. A)58%

B)12%

C)75%

D)None of the above

Answer: A

Type: Difficult

Page: 60

Response: EPS = (75.30)/19 = 3.9631 dividend payout = 2.28/3.9631 = 0.5753= 58%

4.If the Wall Street Journal Quotation for a company has the following values close: 26.00; Net chg: =+1.00; then the closing price for the stock for the previous trading day was? A)$26

B)$25

C)$27

D)None of the above.

Answer: B

Type: Medium

Page: 60

Response: Previous closing = today's closing net chg. = 26.00-1.00= $25.00

5.The value of a common stock today depends on:

A)Number of shares outstanding and the number of shareholders B)The Wall Street analysts

C)The expected future dividends and the discount rate D)Present value of the future earnings per share

Answer: C

Type: Easy

Page: 62

6.Super Computer Company's stock is selling for $100 per share today. It is expected that this stock will pay a dividend of 5 dollars per share, and then be sold for $120 per share at the end of one year. Calculate the expected rate of return for the shareholders. A)20%

B)25%

C)10%

D)15%

Answer: B

Type: Easy

Page: 62

Response: r = (120+5-100)/100 = 25%

7.PC Company stockholders expect to receive a year-end dividend of $10 per share and then be sold for $122 dollars per share. If the required rate of return for the stock is 20%, what is the current value of the stock? A)$100

B)$122

C)$132

D)$110

Answer: D

Type: Medium

Page: 62

Response: P = (122+10)/1.2 = 110

8.Macrohard Company expects to pay a dividend of $6 per share at the end of year one, $8 per share at the end of year two and then be sold for $136 per share. If the required rate on the stock is 20%, what is the current value of the stock? A)$100

B)$105

C)$110

D)$120

Answer: B

Type: Medium

Page: 62

Response: P = (6/1.2)+(8+136)/(1.2^2) = 105

9.The constant dividend growth formula P0 = D1/(r-g) assumes: A)The dividends are growing at a constant rate g forever. B)r > g

C)g is never negative.

D)Both A and B

Answer: D

Type: Medium

Page: 64

10.Casino Co. is expected to pay a dividend of $6 per share at the end of year one and these dividends are expected to grow at a constant rate of 8% per year forever. If the required rate of return on the stock is 20%, what is current value of the stock today? A)$30

B)$50

C)$100

D)$54

Answer: B

Type: Medium

Page: 64

Response: P = (6/(0.2-0.08) = 50

11.WorldTour Co. has just now paid a...

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