Equity Stock Valuation
Assess your understanding of equity stock valuation. This test covers topics of dividend discount models, intrinsic value, zero growth model, one stage growth model. etc.

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Which of the following do financial analysts consider least important when assessing the long-run economic and financial outlook of a company?
1 point
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Sessler Manufacturers made two announcements concerning its common stock today. First, the company announced that the next annual dividend will be $1.75 a share. Secondly, all dividends after that will decrease by 1.5 percent annually. What is the maximum amount you should pay to purchase a share of this stock today if you require a 14 percent rate of return?
2 points
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The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?
2 points
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Which of the following best describes the constant-growth dividend discount model?
1 point
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Corporation B is a normal-growth company that expects to earn 13% on reinvested earnings. If the company pays 30% of its earnings as dividends, what will be the stock’s dividend growth rate?
2 points
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If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion?
1 point
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What is the model called that determines the present value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?
1 point
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Which one of the following statements is correct concerning the two-stage dividend growth model?
1 point
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In the formula ke = (D1/P0) + g, what does g represent?
1 point
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Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:
1 point
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Which of the following is equal to the present value of all cash proceeds received by a stock investor?
1 point
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The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:
1 point
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Miller Brothers Hardware paid an annual dividend of $1.15 per share last month. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 12 percent rate of return, how much are you willing to pay to purchase one share of this stock today?
2 points
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Supernormal growth is a growth rate that:
1 point
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Which of the following is another name for the required return on a stock?
1 point
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Virgin Airlines will pay a $4 dividend next year on its common stock, which is currently selling at $100 per share. What is the market's required return on this investment if the dividend is expected to grow at 5% forever?
2 points
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Which one of the following is an underlying assumption of the dividend growth model?
1 point
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Zeta Corporation can reinvest net income to earn 18% per year. What will be Zeta’s long-term dividend growth rate if Zeta constantly pays out 25% of earnings as dividends?
2 points
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