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Question(s) / Instruction(s):

All of the following affect the value of a share of common stock except:

  1. the dollar amount of the dividends
  2. investors’ required rate of return
  3. the future growth rate for dividends
  4. the stock and paid-in-capital amounts on the balance sheet



2._____ Greenland Airlines has net income of $1 million this year. The book value of Greenland Airlines common equity is $5 million dollars. The company's dividend payout ratio is 70% and is expected to remain this way. What is Greenland Airlines' internal growth rate?

  1. 6%
  2. 9%
  3. 14%
  4. 15%


3._____ An example of the (internal) growth factor in common stock is _______

  1. acquiring a loan to fund an investment in Asia
  2. retaining profits in order to reinvest in the firm
  3. issuing new stock to provide capital for future growth
  4. two strong companies merging together to increase their economy of scale


4. Bee common stock is expected to pay $2.00 in dividends next year, and the market price is projected to be $48.00 per share by year-end. If investors require a rate of return of 11%, what is the current value of the stock? (3 points)


5. If Neal O’Danny preferred stock pays an annual dividend of $2.80, and investors require a 9% return, what is the value of O’Danny’s preferred stock today?


6. Miller/Hershey's preferred stock is selling at $54 on the market and pays an annual dividend of $4.20 per share. (3 points)

  1. What is the expected rate of return on the stock?
  2. If an investor's required rate of return is 9%, what is the value of the stock to that investor?
  3. Considering the investor's required rate of return, does this stock seem to be a desirable investment?


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