Fin 534 week 4 homework chapter 7

FIN 534 Week 4 Homework Chapter 7


1. Which of the behindcited statements is CORRECT?

a. The uniform development standard takes into compensation the principal gains investors rely-on to achieve on a hoard.

b. Two firms delay the identical rely-oned dividend and development admonishs must besides accept the identical hoard figure.

c. It is alienate to use the uniform development standard to revere a hoard's appraise well-balanced if its development admonish is never rely-oned to grace uniform.

d. If a hoard has a required admonish of repay rs = 12%, and if its dividend is rely-oned to advance at a uniform admonish of 5%, this implies that the hoard’s dividend allow is besides 5%.

e. The figure of a hoard is the confer-upon appraise of all rely-oned forthcoming dividends, discounted at the dividend development admonish.


 2. Stocks A and B accept the behindcited postulates. Assuming the hoard communicate is prolific and the hoards are in makeweight, which of the behindcited statements is CORRECT?


A        B

Price                                     $25        $25

Expected development (constant) 10%      5%

Required repay                   15%       15%


a. Hoard A's rely-oned dividend at t = 1 is merely half that of Hoard B.

b. Hoard A has a upper dividend allow than Hoard B.

c. Currently the two hoards accept the identical figure, but aggravate period Hoard B's figure allure ignoring that of A.

d. Since Hoard A’s development admonish is twice that of Hoard B, Hoard A’s forthcoming dividends allure regularly be twice as haughty as Hoard B’s.

e. The two hoards should not retail at the identical figure. If their figures are similar, then a dismakeweight must depend.



3. Which of the behindcited statements is CORRECT?


a. A superior hindrance of financing delay preferred hoard is that preferred hoardholders typically accept supernormal voting propers.

b. Preferred hoard is normally rely-oned to afford steadier, more certain pay to investors than the identical firm’s dishonorable hoard, and, as a end, the rely-oned behind-tax allow on the preferred is inferior than the behind-tax rely-oned repay on the dishonorable hoard.

c. The preemptive proper is a supplies in all corpoadmonish charters that gives preferred hoardholders the proper to acquisition (on a pro rata plea) new issues of preferred hoard.

d. One of the hindrances to a strengthening of owning preferred hoard is that 70% of the dividends spiritless reconfer-upon taxable pay to the corpoadmonish store, since attention pay achieveed on bonds would be tax unreserved.

e. One of the advantages to financing delay preferred hoard is that 70% of the dividends compensated out are tax deductible to the issuer.



4. Church Inc. is confer-upmerely enjoying relatively haughty development consequently of a surge in the call-for for its new emanation. Management rely-ons achieveings and dividends to advance at a admonish of 25% for the instant 4 years, behind which rivalry allure probably impair the development admonish in achieveings and dividends to cipher, i.e., g = 0. The association’s decisive dividend, D0, was $1.25, its beta is 1.20, the communicate motive bribe is 5.50%, and the motive-unreserved admonish is 3.00%. What is the running figure of the dishonorable hoard?


a. $26.77

b. $27.89

c. $29.05

d. $30.21

e. $31.42



5. Your boss, Sally Maloney, treasurer of Fred Clark Enterprises (FCE), asked you to aid her revere the true appraise of the association's hoard. FCE fair compensated a dividend of $1.00, and the hoard now retails for $15.00 per divide. Sally asked a sum of pawn analysts what they affect FCE's forthcoming dividends allure be, established on their dissection of the association. The concord is that the dividend allure be increased by 10% during Years 1 to 3, and it allure be increased at a admonish of 5% per year in Year 4 and thereafter. Sally asked you to use that instruction to revere the required admonish of repay on the hoard, rs, and she affordd you delay the behindcited template for use in the dissection.


Sally told you that the development admonishs in the template were fair put in as a Nursing essay, and that you must restore them delay the analysts' forecasted admonishs to get the reform forecasted dividends and then the revered TV. She besides notes that the revered appraise for rs, at the top of the template, is besides fair a suspect, and you must restore it delay a appraise that allure motive the Conducive Figure shown at the proground to similar the Objective Communicate Price. She suggests that, behind you accept put in the reform dividends, you can manually investigate the figure, using a train of suspectes as to the Estimated rs. The appraise of rs that motives the investigated figure to similar the objective figure is the reform one. She notes, though, that this Nursing essay-and-error mode would be completely flat, and that the reform rs could be ground considerable faster delay a weak Excel standard, especially if you use Goal Seek. What is the appraise of rs?


a. 11.84%

b. 12.21%

c. 12.58%

d. 12.97%


e. 13.36%