1. Parcel Corporation expects to pay a dividend of $8 per share next year, and the dividend payout ratio is 60%. If dividends are expected to grow at a constant rate of 10% forever, and the required rate of return on the stock is 18%, calculate the present value of growth opportunities.
a. $74.07.
b. $25.93.
c. $100.00.
d. $80.00.
2. The duration of a $650 million portfolio is 15 years. $350 million in new securities are added to the portfolio, decreasing the duration of the portfolio to 13.25 years. What is the duration of the 350 million in new securities?
a. 13.00 years.
b. 12.25 years.
c. 9.50 years.
d. 10.00 years.
3. Which of the following actions would help a firm's growth problem if its actual sales growth exceeds its sustainable rate of growth?
I. Increase dividends
II. Prune away less-profitable products
III. Decrease prices
IV. Decrease financial leverage
a. I and II only
b. I and III only
c. I, II, and IV only
d. I, III, and IV only
e. I, II, III, and IV
4. Suppose that you buy a two-year 9% TIPS (Treasury Inflation-Protected Securities) at its face value. What will be your nominal return on the two-year if inflation is 6% in the first year and 7% in the second year?
a. 19.19%.
b. 29.72%.
c. 34.75%.
d. 38.52%.
5. Hayesville Corporation tripled its shareholders' equity during the year 2017. Hayesville did not issue any new equity, repurchase any equity, or pay out any dividends during the year. What is Hayesville t's sustainable growth rate for 2017?
a. 150%.
b. 100%.
c. 200%.
d. 300%.
e. 50%.
6. Wax Music has a 12.50 percent profit margin and a 70 percent dividend payout ratio. The asset turnover ratio is 0.85 and the assets-to-equity ratio (using beginning-of-period equity) is 1.75. What is Wax Music 's sustainable rate of growth?
a. 9.30%.
b. 5.58%.
c. 6.20%.
d. 13.02%.