1. A firm's stock can represent a good investment when __________.
A. cash flow is positive
B. expectations embedded in the current stock price are overly pessimistic
C. sales growth is positive
D. profits are positive
2. You expect firm XYZ to pay a dividend next year of $0.50, in year 2 of $0.60, and in year 3 of $0.75. If you expect the stock to sell for $35 in three years and the required rate is 8%, what is your estimate of the current price per share?
A. $37.50
B. $27.80
C. $29.36
D. $20.30
3. Consider Elixir Drug Company, which is enjoying rapid growth from the introduction of its new medicine for back pain. What is your estimate of the current price per share using a two-stage DDM if you assume the growth rate in dividends will be 15% for the next five years then fall to 5% forever, the required return on equity (Re) is 10% and the current dividend is $1.00 per share?
A. $53.91
B. $20.78
C. $23.00
D. $31.95