# 63. Show Boat Dinner Theatres has paid annual dividends of $0.32, $0.48, and $0.60 a share over the

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63. Show Boat Dinner Theatres has paid annual

dividends of $0.32, $0.48, and $0.60 a share over the past three years,

respectively. The company now predicts that it will maintain a constant

dividend since its business has leveled off and sales are expected to remain

relatively flat. Given the lack of future growth, you will only buy this stock

if you can earn at least a 16 percent rate of return. What is the maximum

amount you are willing to pay for one share of this stock today?

A. $3.43

B. $3.75

C. $4.43

D. $4.69

E. $4.82

64. The common stock of Auto Deliveries sells for

$28.16 a share. The stock is expected to pay $1.35 per share next year when the

annual dividend is distributed. The firm has established a pattern of increasing

its dividends by 3 percent annually and expects to continue doing so. What is

the market rate of return on this stock?

A. 7.42 percent

B. 7.79 percent

C. 19.67 percent

D. 20.14 percent

E. 20.86 percent

65. The current dividend yield on Clayton’s Metals

common stock is 2.5 percent. The company just paid a $1.48 annual dividend and

announced plans to pay $1.54 next year. The dividend growth rate is expected to

remain constant at the current level. What is the required rate of return on

this stock?

A. 6.55 percent

B. 6.82 percent

C. 7.08 percent

D. 7.39 percent

E. 7.75 percent

66. Northern Gas recently paid a $2.80 annual dividend

on its common stock. This dividend increases at an average rate of 3.8 percent

per year. The stock is currently selling for $26.91 a share. What is the market

rate of return?

A. 13.88 percent

B. 14.03 percent

C. 14.21 percent

D. 14.37 percent

E. 14.60 percent

67. Denver Shoppes will pay an annual dividend of

$1.46 a share next year with future dividends increasing by 4.2 percent

annually. What is the market rate of return if the stock is currently selling

for $38.90 a share?

A. 6.55 percent

B. 7.13 percent

C. 7.46 percent

D. 7.95 percent

E. 8.29 percent

68. Great Lakes Health Care common stock offers an expected

total return of 9.2 percent. The last annual dividend was $2.10 a share.

Dividends increase at a constant 2.6 percent per year. What is the dividend

yield?

A. 3.75 percent

B. 4.20 percent

C. 4.55 percent

D. 5.25 percent

E. 6.60 percent

69. Electronics, Inc. common stock returned a nifty

22.68 percent rate of return last year. The dividend amount was $0.25 a share

which equated to a dividend yield of 0.84 percent. What was the rate of price

appreciation for the year?

A. 21.84 percent

B. 22.38 percent

C. 22.60 percent

D. 22.87 percent

E. 23.52 percent

70. Roy’s Welding Supplies common stock sells for $38

a share and pays an annual dividend that increases by 3 percent annually. The

market rate of return on this stock is 8.20 percent. What is the amount of the

last dividend paid?

A. $1.80

B. $1.86

C. $1.92

D. $1.98

E. $2.10

71. Douglass Gardens pays an annual dividend that is

expected to increase by 4.1 percent per year. The stock commands a market rate

of return of 12.6 percent and sells for $24.90 a share. What is the expected

amount of the next dividend?

A. $2.03

B. $2.12

C. $3.17

D. $2.20

E. $2.28

72. Atlas Mines has adopted a policy of increasing the

annual dividend on its common stock at a constant rate of 2.75 percent annually.

The firm just paid an annual dividend of $1.67. What will the dividend be six

years from now?

A. $1.88

B. $1.92

C. $1.97

D. $2.02

E. $2.05

73. A stock pays a constant annual dividend and sells

for $56.10 a share. If the market rate of return on this stock is 15.85

percent, what is the amount of the next annual dividend?

A. $7.67

B. $7.94

C. $8.21

D. $8.89

E. $10.30

74. You want to purchase some shares of Green World

stock but need a 15 percent rate of return to compensate for the perceived risk

of such ownership. What is the maximum you are willing to spend per share to

buy this stock if the company pays a constant $0.90 annual dividend per

share?

A. $5.40

B. $6.00

C. $6.90

D. $7.20

E. $7.80

75. Home Canning Products common stock sells for

$44.96 a share and has a market rate of return of 12.8 percent. The company

just paid an annual dividend of $1.04 per share. What is the dividend growth

rate?

A. 8.29 percent

B. 8.45 percent

C. 9.23 percent

D. 9.67 percent

E. 10.25 percent

76. Winter Time Adventures is going to pay an annual

dividend of $2.86 a share on its common stock next year. This year, the company

paid a dividend of $2.75 a share. The company adheres to a constant rate of

growth dividend policy. What will one share of this common stock be worth five

years from now if the applicable discount rate is 11.7 percent?

A. $43.45

B. $43.87

C. $44.15

D. $45.19

E. $47.00

77. Hightower Pharmacy just paid a $3.10 annual

dividend. The company has a policy of increasing the dividend by 3.8 percent

annually. You would like to purchase 100 shares of stock in this firm but

realize that you will not have the funds to do so for another four years. If

you require a 16 percent rate of return, how much will you be willing to pay

per share for the 100 shares when you can afford to make this investment?

A. $29.50

B. $30.62

C. $31.12

D. $31.78

E. $32.47

78. National Warehousing just announced it is

increasing its annual dividend to $1.18 next year and establishing a policy

whereby the dividend will increase by 3.25 percent annually thereafter. How

much will one share of this stock be worth 8 years from now if the required

rate of return is 9.5 percent?

A. $24.38

B. $25.68

C. $26.51

D. $27.02

E. $27.37

79. Shares of Hot Donuts common stock are currently

selling for $32.35. The last annual dividend paid was $1.10 per share and the

market rate of return is 10.7 percent. At what rate is the dividend

growing?

A. 7.06 percent

B. 8.67 percent

C. 10.42 percent

D. 12.60 percent

E. 14.10 percent

80. Combined Communications is a new firm in a rapidly

growing industry. The company is planning on increasing its annual dividend by

15 percent a year for the next 4 years and then decreasing the growth rate to

3.5 percent per year. The company just paid its annual dividend in the amount

of $0.20 per share. What is the current value of one share of this stock if the

required rate of return is 15.5 percent?

A. $1.82

B. $2.04

C. $2.49

D. $2.71

E. $3.05

81. KL Airlines paid an annual dividend of $1.42 a

share last month. The company is planning on paying $1.50, $1.75, and $1.80 a

share over the next 3 years, respectively. After that, the dividend will be

constant at $2 per share per year. What is the market price of this stock if

the market rate of return is 10.5 percent?

A. $15.98

B. $16.07

C. $18.24

D. $21.16

E. $24.10

82. Renew It, Inc., is preparing to pay its first

dividend. It is going to pay $0.45, $0.60, and $1 a share over the next three

years, respectively. After that, the company has stated that the annual

dividend will be $1.25 per share indefinitely. What is this stock worth to you

per share if you demand a 10.8 percent rate of return on stocks of this

type?

A. $6.67

B. $8.21

C. $10.14

D. $11.47

E. $12.03

83. Diets For You announced today that it will begin

paying annual dividends next year. The first dividend will be $0.12 a share.

The following dividends will be $0.15, $0.20, $0.50, and $0.60 a share annually

for the following 4 years, respectively. After that, dividends are projected to

increase by 4 percent per year. How much are you willing to pay to buy one

share of this stock today if your desired rate of return is 8.5 percent?

A. $9.67

B. $9.94

C. $10.38

D. $10.50

E. $10.86

84. Crystal Glass recently paid $3.60 as an annual

dividend. Future dividends are projected at $3.80, $4.10, and $4.25 over the

next 3 years, respectively. Beginning 4 years from now, the dividend is

expected to increase by 3.25 percent annually. What is one share of this stock

worth to you if you require a 12.5 percent rate of return on similar

investments?

A. $42.92

B. $43.40

C. $45.12

D. $45.88

E. $46.50

85. Langley Enterprises pays a constant dividend of

$0.60 a share. The company announced today that it will continue to pay the dividend

for another 2 years after which time all dividends will cease. What is one

share of this stock worth today if the required rate of return is 16.5

percent?

A. $0.92

B. $0.96

C. $1.04

D. $1.09

E. $1.20

86. Yesteryear Productions pays no dividend at the

present time. The company plans to start paying an annual dividend in the

amount of $0.40 a share for two years commencing four years from today. After

that time, the company plans on paying a constant $0.75 a share annual dividend

indefinitely. How much are you willing to pay to buy a share of this stock

today if your required return is 11.6 percent?

A. $3.78

B. $4.22

C. $4.37

D. $4.71

E. $4.98

87. Sweatshirts Unlimited is downsizing. The company

paid a $2.80 annual dividend last year. The company has announced plans to

lower the dividend by 25 percent each year. Once the dividend amount becomes

zero, the company will cease all dividends and go out of business. You have a

required rate of return of 15.5 percent on this particular stock given the

company’s situation. What are your shares in this firm worth today on a per

share basis?

A. $5.19

B. $6.91

C. $8.68

D. $19.29

E. $22.11

88. Dexter Metals, paid its first annual dividend

yesterday in the amount of $0.18 a share. The company plans to double each

annual dividend payment for the next 3 years. After that time, it plans to pay

$1.25 a share for 2 years than then pay a constant dividend of $1.60 per share

indefinitely. What is one share of this stock worth today if the market rate of

return on similar securities is 10.24 percent?

A. $12.32

B. $12.77

C. $13.20

D. $14.26

E. $14.79

89. Marshall Arts Studios just paid an annual dividend

of $1.36 a share. The firm plans to pay annual dividends of $1.40, $1.46, and

$1.58 over the next 3 years, respectively. After that time, the dividends will

be held constant at $1.60 per share. What is this stock worth today at a 9

percent discount rate?

A. $14.08

B. $14.30

C. $16.67

D. $16.79

E. $17.46

90. Home Care Providers is paying an annual dividend

of $1.10 every other year. The last dividend was paid two years ago. The firm

will continue this policy until 3 more dividend payments have been paid. One

year after the last dividend normal payment, the company plans to pay a final

liquidating dividend of $40 per share. What is the current market value of this

stock if the required return is 17 percent?

A. $18.92

B. $20.74

C. $23.16

D. $24.14

E. $24.53

91. Last year, Hansen Delivery paid an annual dividend

of $3.20 per share. The company has been reducing the dividends by 10 percent

annually. How much are you willing to pay to purchase stock in this company if

your required rate of return is 11.5 percent?

A. $1.92

B. $7.87

C. $13.40

D. $21.16

E. $24.08

92. Beatrice Markets is expecting a period of intense

growth and has decided to retain more of its earnings to help finance that

growth. As a result, it is going to reduce its annual dividend by 30 percent a

year for the next 2 years. After that, it will maintain a constant dividend of

$2.50 a share. Last year, the company paid $3.60 as the annual dividend per

share. What is the market value of this stock if the required rate of return is

14.5 percent?

A. $14.63

B. $16.70

C. $18.08

D. $19.61

E. $21.23

93. Bonnie’s Ice Cream is expecting its ice cream

sales to decline due to the increased interest in healthy eating. Thus, the

company has announced that it will be reducing its annual dividend by 2 percent

a year for the next five years. After that, it will maintain a constant dividend

of $2 a share. Last year, the company paid $2.20 per share. What is this stock

worth to you if you require a 9.5 percent rate of return?

A. $16.21

B. $17.48

C. $18.64

D. $19.09

E. $21.36

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94. J&J Foods wants to issue some 7 percent

preferred stock that has a stated liquidating value of $100 a share. The

company has determined that stocks with similar characteristics provide a 12.8

percent rate of return. What should the offer price be?

A. $37.26

B. $41.38

C. $48.20

D. $54.69

E. $62.60

95. The preferred stock of Rail Lines, Inc., pays an

annual dividend of $7.50 and sells for $59.70 a share. What is the rate of

return on this security?

A. 10.38 percent

B. 11.63 percent

C. 12.56 percent

D. 12.72 percent

E. 12.84 percent

96. Marie owns shares of Deltona Productions preferred

stock which she says provides her with a constant 14.3 percent rate of return.

The stock is currently priced at $45.45 a share. What is the amount of the

dividend per share?

A. $6.00

B. $6.25

C. $6.50

D. $6.60

E. $7.00

97. Zylo, Inc. preferred stock pays a $7.50 annual

dividend. What is the maximum price you are willing to pay for one share of

this stock today if your required return is 9.75 percent?

A. $32.26

B. $35.48

C. $72.68

D. $76.92

E. $79.81

Essay Questions

98. What are the primary differences and similarities

between NASDAQ and the NYSE?

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