1.If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock’s expected total return for the coming year?
a. 7.54%
b. 7.73%
c. 7.93%
d. 8.13%
e. 8.34%
2. Sorenson Corp.’s expected year-end dividend is D1 = $1.60, its required return is rs = 11.00%, its dividend yield is 6.00%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years?
a. $37.52
b. $39.40
c. $41.37
d. $43.44
e. $45.61
3. In order for the Constant Growth Model works, the required rate of return (R) has to be less than dividend growth rate (g)
a. True
b. False
4. The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as:
A. duplication.
B. the net present value profile.
C. multiple rates of return.
D. the AAR problem.
E. the dual dilemma
5. Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities?
A. Payback
B. Profitability index
C. Accounting rate of return
D. Internal rate of return
E. Net present value
6. What is the net present value of the following set of cash flows at a discount rate of 7 percent? At 20 percent?
Time period Cash Flow
0 -$17,000
1 $4,500
2 $8,700
3 $11,900
A. $4,518.47; $628.30
B. $4,518.47; -$321.76
C. $4,518.47; -$525.13
D. $4,722.09; $504.21
E. $4,722.09; -$418.05