Q&A Hero

Q: The net present value of a project will increase if: A) the required rate of return increases. B) the initial capital requirement increases. C) some of the cash inflows are deferred until a later year. D) the aftertax salvage value of the fixed assets increases. E) the final cash inflow decreases.

Q: Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? A) Reduction in the cash outflow at Time 0 B) Cash inflow in the final year of the project C) Cash inflow for the year following the final year of the project D) Cash inflow prorated over the life of the project E) Excluded from the net present value calculation

Q: If a project has a net present value equal to zero, then: A) the total of the cash inflows must equal the initial cost of the project. B) the project earns a return exactly equal to the discount rate. C) a decrease in the project's initial cost will cause the project to have a negative NPV. D) any delay in receiving the projected cash inflows will cause the project to have a positive NPV. E) the project's PI must also be equal to zero.

Q: Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted? A) Net present value B) Discounted payback C) Internal rate of return D) Profitability index E) Payback

Q: Which one of the following will decrease the net present value of a project? A) Increasing the value of each of the project's discounted cash inflows B) Moving each cash inflow forward one time period, such as from Year 3 to Year 2 C) Decreasing the required discount rate D) Increasing the project's initial cost at time zero E) Increasing the amount of the final cash inflow

Q: A project has a net present value of zero. Which one of the following best describes this project? A) The project has a zero percent rate of return. B) The project requires no initial cash investment. C) The project has no cash flows. D) The summation of all of the project's cash flows is zero. E) The project's cash inflows equal its cash outflows in current dollar terms.

Q: Hi-Tek is a young start-up company that is currently retaining all of its earnings. The company plans to pay a $2 per share dividend in Year 7 and increase that dividend by 2.2 percent per year thereafter. What is the current share price if the required return is 16 percent? A) $5.95 B) $6.62 C) $8.59 D) $14.29 E) $11.78

Q: Morris Companies preferred stock pays a constant $5.75 dividend every year. What is the required return if the stock price is $54.09 per share? A) 10.63 percent B) 11.02 percent C) 11.08 percent D) 11.84 percent E) 10.95 percent

Q: Whistle Stop pays a constant annual dividend of $4 on its stock. The company will maintain this dividend for the next 3 years and will then cease paying dividends forever. What is the current price per share if the required return on this stock is 15.6 percent? A) $10.38 B) $9.52 C) $9.04 D) $9.28 E) $10.02

Q: JL Co. stock currently sells for $64 per share and the required return is 12 percent. The total return is evenly divided between the capital gains yield and the dividend yield. What is the current dividend per share if it's the company's policy to always maintain a constant growth rate in its dividends? A) $4.09 B) $3.62 C) $4.02 D) $3.56 E) $3.84

Q: AC Electric just paid its annual dividend of $2.42. The firm plans to increase its dividend by 2.5 percent for the next 3 years and then maintain a constant 2 percent rate of dividend growth. The required return is 12.5 percent. What is the current value per share of this stock? A) $32.95 B) $23.09 C) $22.22 D) $28.47 E) $23.82

Q: The next dividend payment by HG Enterprises will be $1.82 per share with future increases of 2.8 percent annually. The stock currently sells for $38.70 per share. What is the dividend yield? A) 4.20 percent B) 4.70 percent C) 4.81 percent D) 4.56 percent E) 4.41 percent

Q: The Grist Mill just paid its annual dividend of $1.58 per share. The dividends are expected to grow at 2.7 percent per year, indefinitely. What will the price of this stock be in 7 years if investors require an annual return of 15.2 percent? A) $15.08 B) $15.24 C) $15.83 D) $15.64 E) $15.33

Q: AOK preferred stock pays an annual dividend of $6.50. What is the current price of this stock at a discount rate of 8.9 percent? A) $57.85 B) $65.48 C) $78.25 D) $73.03 E) $67.50

Q: A preferred stock sells for $63.60 a share and provides a return of 8.40 percent. What is the amount of the dividend per share? A) $5.45 B) $5.25 C) $5.34 D) $5.43 E) $5.28

Q: A preferred stock pays an annual dividend of $5.40 and sells for $63.20 a share. What is the rate of return? A) 9.38 percent B) 9.03 percent C) 8.54 percent D) 8.72 percent E) 8.84 percent

Q: J&J Foods wants to issue 5.4 percent preferred stock with a stated liquidating value of $100 a share. The company has determined that stocks with similar characteristics provide a return of 8.2 percent. What should the offer price be? A) $67.26 B) $61.38 C) $64.20 D) $65.85 E) $64.60

Q: Your local toy store just announced its annual dividend will be $4 dividend next year, $3 the following year, and then a final liquidating dividend of $46 a share in Year 3. At a discount rate of 18 percent, what should one share sell for today? A) $36.21 B) $31.48 C) $35.64 D) $39.09 E) $33.54

Q: Kay's Sewing Loft is going to reduce its annual dividend by 10 percent a year for the next two years. After that, it will maintain a constant dividend of $2 a share. Last year, the company paid an annual dividend of $3 per share. What is the market value of this stock if the required return is 13.7 percent? A) $14.63 B) $15.55 C) $15.08 D) $14.19 E) $15.84

Q: Next year, Jensen's will pay an annual dividend of $3.32 per share. The company has been reducing its dividends by 7 percent annually. What is this stock worth today if the required return is 15.5 percent? A) $16.92 B) $25.87 C) $14.76 D) $38.33 E) $39.06

Q: Home Parties is paying an annual dividend of $1.78 every other year. The last dividend was paid last year. The firm will continue this policy until two more dividend payments have been paid. Three years after the last normal dividend payment, the company plans to pay a final liquidating dividend of $32 per share. What is the current market value of this stock if the required return is 14.7 percent? A) $18.92 B) $16.78 C) $14.63 D) $17.14 E) $19.25

Q: Sew 'N More just paid an annual dividend of $1.42 a share. The firm plans to pay annual dividends of $1.45, $1.50, and $1.53 over the next 3 years, respectively. After that time, the dividends will be held constant at $1.60 per share. What is this stock worth today at a discount rate of 11.7 percent? A) $12.39 B) $13.30 C) $13.67 D) $12.79 E) $13.41

Q: DT Motors paid its first annual dividend yesterday in the amount of $.15 a share. The company plans to double the dividend in each of the next 3 years. Starting in Year 4, the firm plans to pay $1.50 a share indefinitely. What is one share of this stock worth today if the market rate of return on similar securities is 13.8 percent? A) $11.02 B) $10.77 C) $8.92 D) $10.26 E) $11.79

Q: Sweatshirts Ltd. is downsizing. The company paid an annual dividend of $4.20 last year and has announced plans to lower the dividend by 25 percent each year. Once the dividend amount becomes zero, the company will go out of business. You have a required rate of return of 18 percent on this particular stock. What are your shares in this firm worth today on a per share basis? A) $7.33 B) $0 C) $8.68 D) $8.29 E) $7.11

Q: New Products pays no dividend at the present time. Starting in Year 3, the firm will pay a dividend of $.25 per share for two years. After that, the company plans on paying a constant $.75 a share annual dividend indefinitely. How much should you pay per share to purchase this stock today at a required return of 13.8 percent? A) $3.78 B) $3.56 C) $4.37 D) $4.61 E) $4.98

Q: The Sly Fox pays a constant dividend of $1.46 a share. The company announced today that it will continue to pay the dividend for another 2 years and then in Year 3 it will pay a final liquidating dividend of $15.25 a share. What is one share of this stock worth today at a required return of 18.5 percent? A) $12.92 B) $11.44 C) $12.07 D) $13.09 E) $14.20

Q: Crystal Glass recently paid $3.60 as an annual dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the next three years, respectively. Beginning four years from now, the dividend is expected to increase by 3.25 percent annually. What is one share of this stock worth today at a discount rate of 12.5 percent? A) $42.92 B) $43.40 C) $45.12 D) $45.88 E) $46.50

Q: Over the next three years, Distant Groves will pay annual dividends of $.65, $.70, and $.75 a share, respectively. After that, dividends are projected to increase by 2 percent per year. What is one share of this stock worth today at a required return of 14.5 percent? A) $5.49 B) $5.94 C) $5.68 D) $5.55 E) $5.86

Q: KNJ Companies is preparing to pay annual dividends of $1.48, $1.60, and $1.75 a share over the next three years, respectively. After that, the annual dividend will be $1.90 per share indefinitely. What is this stock worth to you per share if you require a return of 14.6 percent? A) $11.22 B) $12.21 C) $12.32 D) $11.47 E) $12.03

Q: Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.52, $1.58, and $1.60 a share over the next three years, respectively. After that, the dividend will be constant at $1.65 per share per year. What is the market price of this stock if the market rate of return is 12 percent? A) $13.98 B) $14.07 C) $13.54 D) $14.16 E) $15.01

Q: Global Tek plans on increasing its annual dividend by 15 percent a year for the next four years and then decreasing the growth rate to 2.5 percent per year. The company just paid its annual dividend in the amount of $.20 per share. What is the current value of one share of this stock if the required rate of return is 17.4 percent? A) $1.82 B) $2.18 C) $2.03 D) $2.71 E) $3.05

Q: Hot Teas common stock is currently selling for $38.97. The last annual dividend paid was $1.26 per share and the market rate of return is 13.2 percent. At what rate is the dividend growing? A) 9.65 percent B) 10.67 percent C) 12.79 percent D) 11.08 percent E) 12.10 percent

Q: Global Logistics just announced it is increasing its annual dividend to $1.68 next year and will increase that dividend by 1.85 percent annually thereafter. How much will one share of this stock be worth ten years from now if the required rate of return is 12.8 percent? A) $18.43 B) $18.26 C) $18.09 D) $19.12 E) $18.77

Q: The UpTowner just paid an annual dividend of $4.12. The company has a policy of increasing the dividend by 2.5 percent annually. You would like to purchase shares of stock in this firm but realize that you will not have the funds to do so for another four years. If you require a rate of return of 16.7 percent, how much will you be willing to pay per share when you can afford to make this investment? A) $32.03 B) $32.83 C) $33.12 D) $33.65 E) $32.47

Q: Gee-Gee's is going to pay an annual dividend of $2.05 a share next year. This year, the company paid a dividend of $2 a share. The company adheres to a constant rate of growth dividend policy. What will one share of this common stock be worth six years from now if the applicable discount rate is 11.2 percent? A) $26.94 B) $28.00 C) $26.28 D) $27.33 E) $26.66

Q: Home Products common stock sells for $36.84 a share and has a market rate of return of 15.8 percent. The company just paid an annual dividend of $1.61 per share. What is the dividend growth rate? A) 11.43 percent B) 11.06 percent C) 10.87 percent D) 11.18 percent E) 10.95 percent

Q: You want to purchase some shares of JJ Farms stock but need a rate of return of 17.5 percent to compensate for the perceived risk. What is the maximum you are willing to pay per share for this stock if the company pays a constant $2.43 annual dividend per share? A) $11.11 B) $13.89 C) $9.26 D) $7.20 E) $8.47

Q: AB Co. stock pays a constant annual dividend, sells for $56.07 a share, and has a market rate of return of 12.2 percent. What is the amount of the next annual dividend? A) $5.67 B) $5.94 C) $6.21 D) $6.84 E) $7.30

Q: The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now? A) $2.10 B) $2.05 C) $2.08 D) $2.02 E) $2.15

Q: Flo's Flowers pays an annual dividend that increases by 1.8 percent per year, commands a market rate of return of 13.8 percent, and sells for $19.08 a share. What is the expected amount of the next dividend? A) $2.24 B) $2.29 C) $2.37 D) $2.32 E) $2.17

Q: Roy's Welding common stock sells for $58.49 a share and pays an annual dividend that increases by 1.3 percent annually. The market rate of return on this stock is 12.6 percent. What is the amount of the last dividend paid? A) $6.60 B) $5.86 C) $6.52 D) $6.98 E) $5.64

Q: Gee-Gee common stock returned a nifty 21.6 percent rate of return last year. The dividend amount was $.25 a share which equated to a dividend yield of 1.01 percent. What was the rate of price appreciation for the year? A) 20.59 percent B) 21.38 percent C) 23.60 percent D) 22.87 percent E) 21.52 percent

Q: Home Services common stock offers an expected total return of 14.56 percent. The last annual dividend was $2.27 a share. Dividends increase at a constant 2.1 percent per year. What is the dividend yield? A) 16.66 percent B) 16.48 percent C) 13.35 percent D) 14.20 percent E) 12.46 percent

Q: The Uptowner will pay an annual dividend of $3.26 a share next year with future dividends increasing by 2.8 percent annually. What is the market rate of return if the stock is currently selling for $49.10 a share? A) 9.63 percent B) 9.13 percent C) 8.46 percent D) 9.44 percent E) 6.83 percent

Q: Southern Markets recently paid an annual dividend of $2.62 on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $28.12 a share. What is the market rate of return? A) 13.88 percent B) 14.07 percent C) 14.21 percent D) 14.37 percent E) 13.47 percent

Q: The current dividend yield on CJ's common stock is 1.89 percent. The company just paid an annual dividend of $1.56 and announced plans to pay $1.70 next year. The dividend growth rate is expected to remain constant at the current level. What is the required rate of return on this stock? A) 10.86 percent B) 15.82 percent C) 9.08 percent D) 13.39 percent E) 12.75 percent

Q: The common stock of Dayton Repair sells for $47.92 a share. The stock is expected to pay $2.28 per share next year when the annual dividend is distributed. The company increases its dividends by 1.65 percent annually. What is the market rate of return on this stock? A) 4.84 percent B) 6.41 percent C) 9.92 percent D) 6.14 percent E) 7.28 percent

Q: GEO Inc. has paid annual dividends of $.41, $.47, and $.53 a share over the past three years, respectively. The company expects to now maintain a constant dividend. At a discount rate of 14.4 percent, what is the current value per share? A) $2.85 B) $3.68 C) $2.43 D) $3.09 E) $3.18

Q: The common stock of Water Town Mills pays a constant annual dividend of $2.25 a share. What is one share of this stock worth at a discount rate of 16.2 percent? A) $13.89 B) $14.01 C) $14.56 D) $13.79 E) $13.28

Q: Yummy Bakery just paid an annual dividend of $3.40 a share and is expected to increase that amount by 2.2 percent per year. If you are planning to buy 1,000 shares of this stock next year, how much should you expect to pay per share if the market rate of return for this type of security is 14.8 percent at the time of your purchase? A) $29.89 B) $27.58 C) $29.83 D) $28.18 E) $27.20

Q: Future Motors is expected to pay an annual dividend next year of $3.10 a share. Dividends are expected to increase by 1.85 percent annually. What is one share of this stock worth at a required rate of return of 15 percent? A) $24.01 B) $26.30 C) $24.56 D) $23.57 E) $24.59

Q: How much are you willing to pay for one share of LBM stock if the company just paid an annual dividend of $2.24, the dividends increase by 2.3 percent annually, and you require a return of 14.8 percent? A) $19.29 B) $19.33 C) $18.33 D) $18.21 E) $17.59

Q: Dee's made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.58 a share. Secondly, all dividends after that will decrease by 1.15 percent annually. What is the value of this stock at a discount rate of 15.5 percent? A) $9.49 B) $10.10 C) $9.82 D) $10.51 E) $11.01

Q: Three Corners Markets paid an annual dividend of $1.42 a share last month. Today, the company announced that future dividends will be increasing by 1.3 percent annually. If you require a return of 14.6 percent, how much are you willing to pay to purchase one share of this stock today? A) $11.23 B) $10.82 C) $10.68 D) $9.68 E) $11.57

Q: Who can access Level 3 of NASDAQ's information? A) Anyone with internet access B) Only NASDAQ regulators C) Customers who pay an access fee D) NASDAQ market makers E) There is no Level 3

Q: Which one of the following best describes NASDAQ? A) Largest U.S. stock market in terms of dollar trading volume B) Market where dealers buy at the asked price C) Market where the designated market makers are located at posts D) Computer network of securities dealers E) Market with three physical trading floors

Q: Which one of the following statements applies to NASDAQ? A) Composed of four separate markets B) Exchange floor located in Chicago C) Provides two levels of information access D) Designated market maker system E) Multiple market maker system

Q: Which one of the following transactions occurs in the primary market? A) Purchase of 500 shares of GE stock from a current shareholder B) Gift of 100 outstanding shares to a charitable organization C) Gift of 200 shares of stock by a mother to her daughter D) A purchase of newly issued stock from the issuer E) IBM's purchase of GE stock from a dealer

Q: Which one of the following statements related to the NYSE is correct? A) Exchange members must purchase trading licenses. B) NYSE shareholders currently own "seats" on the exchange. C) Designated market makers buy at the asked price. D) The NYSE is privately owned by an investment firm. E) Electronic trading has increased the demand for floor brokers.

Q: NYSE designated market makers: A) execute trades on behalf of their clients. B) are guaranteed a profit on every stock purchased and resold. C) act as dealers. D) provide a one-sided market. E) are also referred to as "$2 brokers."

Q: NASDAQ has: A) an electronic network that transmits orders directly to the trading floor. B) both floor and commission brokers. C) three separate markets. D) a single designated market maker for each listed stock. E) level 3 data available online for easy access by all investors.

Q: A securities market primarily composed of dealers who buy and sell for their own inventories is referred to which type of market? A) Auction B) Private C) Over-the-counter D) Regional E) Insider

Q: The average time for a trade on the NYSE Arca is best defined as less than: A) five minutes. B) ten minutes. C) one minute. D) one second. E) fifteen minutes.

Q: The stream of customer orders coming in to the NYSE trading floor is called the: A) paper trail. B) trading volume. C) order flow. D) bid-ask spread. E) commission trail.

Q: Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers? A) Garage order flow B) Pillar system C) Big Room system D) SLP network E) Order NET

Q: An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a: A) floor trader. B) exchange customer. C) specialist. D) floor broker. E) market maker.

Q: A floor broker on the NYSE does which one of the following? A) Supervises the commission brokers of a specific financial firm B) Trades for his or her own personal inventory C) Executes orders on behalf of customers D) Maintains an inventory and assumes the role of a market maker E) Is charged with maintaining a liquid, orderly market

Q: A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a: A) floor trader. B) floor post. C) designated market maker. D) floor broker. E) commission broker.

Q: A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n): A) designated market maker. B) dealer. C) specialist. D) supplemental liquidity provider. E) floor broker.

Q: The owner of a trading license for the NYSE is called a: A) broker. B) member. C) agent. D) specialist. E) dealer.

Q: An agent who arranges a transaction between a buyer and a seller of equity securities is called a: A) broker. B) floor trader. C) capitalist. D) principal. E) dealer.

Q: An agent who maintains an inventory from which he or she buys and sells securities is called a: A) broker. B) trader. C) capitalist. D) principal. E) dealer.

Q: The secondary market is best defined as the market: A) in which subordinated shares are issued and resold. B) conducted solely by brokers. C) dominated by dealers. D) where outstanding shares of stock are resold. E) where warrants are offered and sold.

Q: Ernst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? A) Private B) Auction C) Tertiary D) Secondary E) Primary

Q: Browning, Inc. owns 50,000 shares of preferred stock in Omega, Inc. What percentage, if any, of the dividend income received by Browning, Inc. from this investment is excluded from federal income taxation in 2018? A) 0 percent B) 100 percent C) 25 percent D) 70 percent E) 50 percent

Q: What are the distributions of either cash or stock to shareholders by a corporation called? A) Coupon payments B) Retained earnings C) Dividends D) Capital payments E) Diluted profits

Q: You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? A) Alternative voting B) Cumulative voting C) Straight voting D) Indenture voting E) Voting by proxy

Q: You want to be on the board of directors of Uptown Communications. Since you are the only shareholder who will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected? A) Democratic B) Cumulative C) Straight D) Deferred E) Proxy

Q: A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called? A) Democratic B) Cumulative C) Straight D) Deferred E) Proxy

Q: Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A) Dual class B) Cumulative C) Non-cumulative D) Preferred E) Common