FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: Shares Valuation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

If a share has a much higher than normal P/E ratio, investors probably expect [blank].

A) slow growth in earnings
B) rapid growth in earnings
C) large increases in the price of the shares
D) a declining shares price

E) None of the above
F) A) and C)

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

KDP's most recent dividend was $2.00 per share and is selling today in the market for $70.The dividend is expected to grow at a rate of 7% per year for the foreseeable future.If the market return is 10% on investments with comparable risk, should you purchase the shares?

A) No, because the share is overpriced at $1.33.
B) No, because the share is overpriced at $3.33.
C) Yes, because the share is underpriced at $1.33.
D) Yes, because the share is underpriced at $3.33.

E) B) and D)
F) B) and C)

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

The expected rate of return on a share of ordinary shares whose dividends are growing at a constant rate (g) is which of the following?

Petrified Forest Skin Care Ltd pays an annual perpetual dividend of $1.70 per share.If the shares are currently selling for $21.25 per share, what is the expected rate of return on these shares?

Brisbane Power issued preference shares in 1998 that had a par value of $85.The preference shares pay a dividend of 5.75%.Investors require a rate of return of 6.50% today on these shares.What is the value of the preference shares today? Round to the nearest $1.

Ordinary shares represent a claim on residual income.

Discuss two reasons why preference shares would be viewed as less risky than ordinary shares to investors.

The growth rate of future earnings is determined by return on equity and the profit-retention rate.

Shares in Softec Ltd is currently selling for $42.86.It is expected to pay a dividend of $3.00 at the end of the year.Dividends are expected to grow at a constant rate of 3% indefinitely.Calculate the required rate of return on FBC shares.

ABC Ltd just paid a dividend of $2.ABC expects dividends to grow at 10%.The return on shares like ABC Ltd is typically around 12%.What is the most you would pay for ABC shares?

The shareholder can cast all votes for a single candidate or split them among various candidates through

An investor is contemplating the purchase of ordinary shares at the beginning of this year and to hold the shares for one year.The investor expects the year-end dividend to be $2.00 and expects a year-end price for the shares of $40.If this investor's required rate of return is 10%, then the value of the shares to this investor is [blank].

Which of the following formulas is appropriate to find the value of preference shares with a fixed dividend?

Apple shares are now selling for $115 per share.The P/E ratio based on current earnings is 13.77 and the P/E ratio based on expected earnings is 12.29.The expected growth rate in Apples earnings must be [blank].

P/E ratios found in published sources or on the Internet are always calculated by dividing the next period's expected earnings into the current price of the shares.

Davis Gas & Electric issued preference shares in 1985 that had a par value of $50.The shares pay a dividend of 7.875%.Assume that the shares are currently selling for $62.50.What is the preferred shareholder's expected rate of return? Round to the nearest 0.01%.

Shares valuation is more precise than bond valuation as shares cash flows are more certain.

If a company has a return on equity of 25% and wants a growth rate of 10%, how much of ROE should be retained?

Green Company's ordinary shares are currently selling at $24.00 per share.The company recently paid dividends of $1.92 per share and projects growth at a rate of 4%.At this rate, what is the share's expected rate of return?

A company may issue multiple classes of preference shares.