Nico Corporation’s common stock is expected to pay a dividend of $3.00 forever and currently sells for $21.42. What is the required rate of return? (a) 10% (b) 12% (c) 13% (d) 14%

Nico Corporation’s common stock is expected to pay a dividend of $3.00 forever and
currently sells for $21.42. What is the required rate of return?
(a) 10%
(b) 12%
(c) 13%
(d) 14%
Answer: D
Level of Difficulty: 2
Learning Goal: 4
Topic: Zero Growth Valuation Model (Equation 7.3)
82. Zack is considering purchasing the stock of Pepsi Cola because he really loves the taste
of Pepsi. What should Zack be willing to pay for Pepsi today if it is expected to pay a
$2 dividend in one year and he expects dividends to growth at 5 percent indefinitely?
Zack requires a 12 percent return to make this investment.
(a) $28.57
(b) $29.33
(c) $31.43
(d) $43.14
Answer: A
Level of Difficulty: 2
Learning Goal: 4
Topic: Constant Growth Valuation Model (Equation 7.4 and Equation 7.5)
83. Nico Corporation’s common stock currently sells for $180 per share. Nico just paid a
dividend of $10.18 and dividends are expected to grow at a constant rate of 6 percent
forever. If the required rate of return is 12 percent, what will Nico Corporation’s stock
sell for one year from now?
(a) $180.00
(b) $187.04
(c) $195.40
(d) $190.80
Answer: C
Level of Difficulty: 4
Learning Goal: 4
Topic: Constant Growth Valuation Model (Equation 7.4 and Equation 7.5)
84. Tangshan China Company’s stock is currently selling for $80.00 per share. The
expected dividend one year from now is $4.00 and the required return is 13 percent.
What is Tangshan’s dividend growth rate assuming that dividends are expected to grow
at a constant rate forever?
(a) 8%
(b) 9%
(c) 10%
(d) 11%
Answer: A
Level of Difficulty: 3
Learning Goal: 4
Topic: Constant Growth Valuation Model (Equation 7.4 and Equation 7.5)
85. Tangshan China’s stock is currently selling for $160.00 per share and the firm’s
dividends are expected to grow at 5 percent indefinitely. Assuming Tangshan China’s
most recent dividend was $5.50, what is the required rate of return on Tangshan’s
stock?
(a) 7.3%
(b) 8.6%
(c) 9.5%
(d) 10.6%
Answer: B
Level of Difficulty: 3
Learning Goal: 4
Topic: Constant Growth Valuation Model (Equation 7.4 and Equation 7.5)
86. Nico Custom Cycles’ common stock currently pays no dividends. The company plans
to begin paying dividends beginning 3 years from today. The first dividend will be
$3.00 and dividends will grow at 5 percent per year thereafter. Given a required return
of 15 percent, what would you pay for the stock today?
(a) $26.00
(b) $19.73
(c) $30.00
(d) $22.68
Answer: D
Level of Difficulty: 4
Learning Goal: 4
Topic: Variable Growth Valuation Model (Equation 7.6)
87. Jia’s Fashions recently paid a $2 annual dividend. The company is projecting that its
dividends will grow by 20 percent next year, 12 percent annually for the two years after
that, and then at 6 percent annually thereafter. Based on this information, how much
should Jia’s Fashions common stock sell for today?
(a) $54.90
(b) $60.80
(c) $66.60
(d) $69.30
Answer: C
Level of Difficulty: 4
Learning Goal: 4
Topic: Variable Growth Valuation Model (Equation 7.6)
Table 7.1
52-WEEK YLD VOL NET
YTD %CHG HI LO STOCK (SYM) Div % PE 100s CLOSE CHG
–5.1 48.72 20.10 FORD (F) 1.00 3.3 18 20,925 30.20 –0.56
88. According to Table 7.1, Ford’s common stock must have closed at _________ per share
on the previous trading day.
(a) $29.64
(b) $30.76
(c) $30.99
(d) $31.55
Answer: B
Level of Difficulty: 2
Learning Goal: 3
Topic: Common Stock Quotation
89. According to Table 7.1, the expected dividend per share for Ford is
(a) $0.25.
(b) $1.00.
(c) $2.00.
(d) $3.30.
Answer: B
Level of Difficulty: 2
Learning Goal: 3
Topic: Common Stock Quotation
90. Referring to Table 7.1, if we assume that Ford’s dividends will grow at a rate of 10
percent forever, the required return on Ford’s stock would be
(a) 7.4%.
(b) 8.9%.
(c) 11.0%.
(d) 13.6%.
Answer: D
Level of Difficulty: 3
Learning Goal: 3
Topic: Common Stock Quotation
91. Based on Table 7.1, Ford’s earnings per share are
(a) $0.80.
(b) $1.21.
(c) $1.68.
(d) $1.91.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Common Stock Quotation
92. Based on the information given in Table 7.1, the number of shares of Ford that were
traded on the previous day was
(a) 2,092.
(b) 20,925.
(c) 209,250.
(d) 2,092,500.
Answer: D
Level of Difficulty: 2
Learning Goal: 3
Topic: Common Stock Quotation