1. Blow Glass Corporation has 100,000 shares of stock outstanding, each with a p
ID: 2705642 • Letter: 1
Question
1. Blow Glass Corporation has 100,000 shares of stock outstanding, each with a par value of $2.50 per share. Blow Glass also has another 400,000 shares of stock that are shelf registered. Blow Glass has retained earnings of $9,000,000 and additional paid-in capital of $1,000,000. What is Blow Glass's book value per share?
a.
$90.00
b.
$100.00
c.
$27.50
d.
$102.50
e.
$92.50
2. Scubapro Corporation currently has 500,000 shares outstanding and plans to issue 200,000 more shares in a seasoned equity offering. The current shareholders have preemptive rights on any new issue of stock by Scubapro Corporation. An investor with 20,000 shares who exercises his preemptive rights on the new stock issue will have the right to buy how many stocks?
a.
200,000 shares
b.
120,000 shares
c.
80,000 shares
d.
12,000 shares
e.
8,000 shares
3. Micromain Company has 10,000,000 shares of common stock authorized and 8,000,000 shares outstanding, each with a $1.00 par value. The firm's additional paid-in capital account has a balance of $18,000,000. The previous year's retained earnings account was $124,000,000. In the year just ended, Micromain generated net income of $16,000,000 and the firm has a dividend payout ratio of 40 percent. What will Micromain's book value per share be when based on the final year-end balance sheet?
a.
$20.75
b.
$15.00
c.
$15.96
d.
$19.95
e.
$18.75
4. If the expected rate of return on a stock exceeds the required rate,
a.
The stock is experiencing supernormal growth.
b.
The stock should be sold.
c.
The company is probably not trying to maximize price per share.
d.
The stock is a good buy.
e.
Dividends are not being declared.
5. Alpha's preferred stock currently has a market price equal to $80 per share. If the dividend paid on this stock is $6 per share, what is the required rate of return investors are demanding from Alpha's preferred stock?
a.
7.5%
b.
13.3%
c.
6.0%
d.
$6.00
e.
None of the above is a correct answer.
6. Ms. Manners Catering (MMC) has paid a constant $1.50 per share dividend to its common stockholders for the past 25 years. MMC expects to continue this policy for the next two years, and then begin to increase the dividend at a constant rate equal to 2 percent per year into perpetuity. Investors require a 12 percent rate of return to purchase MMC's common stock. What is the market value of MMC's common stock?
a.
$14.73
b.
$15.00
c.
$15.58
d.
$15.30
e.
$12.20
7. A share of perpetual preferred stock pays an annual dividend of $6 per share. If investors require a 12 percent rate of return, what should be the price of this preferred stock?
a.
$57.25
b.
$50.00
c.
$62.38
d.
$46.75
e.
$41.64
8. The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?
a.
$44.00
b.
$38.50
c.
$40.00
d.
$45.69
e.
$50.00
9. A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend on this stock?
a.
$3.00
b.
$3.81
c.
$4.29
d.
$4.75
e.
$6.13
a.
$90.00
b.
$100.00
c.
$27.50
d.
$102.50
e.
$92.50
Explanation / Answer
d
c
e
d
a
b
d
a
b
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