Project Week 6
1. A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate is g = 4.0%. What is the current stock price?
a. $23.11
b. $23.70
c. $24.31
d. $24.93
e. $25.57 2. If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock’s expected dividend yield for the coming year?
a. 4.12%
b. 4.34%
c. 4.57%
d. 4.81%
e. 5.05% 3. If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock’s expected total return for the coming year?
a. 8.37%
b. 8.59%
c. 8.81%
d. 9.03%
e. 9.27% 4. Canterberry 's preferred stock pays a dividend of $0.75 per quarter. If the price of the stock is $39.00, what is its nominal (not effective) annual rate of return?
a. 8.03%
b. 7.69%
c. 8.45%
d. 8.67%
e. 7.89% 5. Johnson 's preferred stock pays a dividend of $1.25 per quarter, and it sells for $60.00 per share. What is its effective annual (not nominal) rate of return?
a. 8.32%
b. 6.82%
c. 7.03%
d. 8.60%
e. 7.47%
6. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?
a. Increase the dividend payout ratio for the upcoming year.
b. Increase the percentage of debt in the target capital structure.
c. Increase the proposed capital budget.
d. Reduce the amount of short-term bank debt in order to increase the current ratio.
e. Reduce the percentage of debt in the target capital structure.
7. LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following
a. $23.11
b. $23.70
c. $24.31
d. $24.93
e. $25.57 2. If D1 = $1.25, g (which is constant) = 4.7%, and P0 = $26.00, what is the stock’s expected dividend yield for the coming year?
a. 4.12%
b. 4.34%
c. 4.57%
d. 4.81%
e. 5.05% 3. If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock’s expected total return for the coming year?
a. 8.37%
b. 8.59%
c. 8.81%
d. 9.03%
e. 9.27% 4. Canterberry 's preferred stock pays a dividend of $0.75 per quarter. If the price of the stock is $39.00, what is its nominal (not effective) annual rate of return?
a. 8.03%
b. 7.69%
c. 8.45%
d. 8.67%
e. 7.89% 5. Johnson 's preferred stock pays a dividend of $1.25 per quarter, and it sells for $60.00 per share. What is its effective annual (not nominal) rate of return?
a. 8.32%
b. 6.82%
c. 7.03%
d. 8.60%
e. 7.47%
6. Bankston Corporation forecasts that if all of its existing financial policies are followed, its proposed capital budget would be so large that it would have to issue new common stock. Since new stock has a higher cost than retained earnings, Bankston would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?
a. Increase the dividend payout ratio for the upcoming year.
b. Increase the percentage of debt in the target capital structure.
c. Increase the proposed capital budget.
d. Reduce the amount of short-term bank debt in order to increase the current ratio.
e. Reduce the percentage of debt in the target capital structure.
7. LaPango Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following