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What is the required rate of return on a common stock that is expected to pay a $0

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1. What is the required rate of return on a common stock that is expected to pay a $0.75 annual dividend next year if dividends are expected to grow at 2 percent annually and the current stock price is $8.59?
   A) 8.73%
   B) 8.91%
   C) 10.73%
   D) 11.38%
2. The constant-growth dividend valuation model is best suited for use with
   A) stocks of new or emerging companies.
   B) small-cap stocks within growing industries.
   C) the stocks of mature, dividend-paying companies.
   D) the stocks of cyclical companies.
3. When using the constant-growth dividend valuation model, which of the following will lower the value of the stock?
   A) An increase in the required rate of return.
   B) A decrease in the required rate of return.
   C) An increase in the dividend payout ratio.
   D) An increase in the growth rate of the dividends.
4. Newton, Inc. just paid an annual dividend of $0.95. Their dividends are expected to increase by 4% annually. Newton Company stock is selling for $11.54 a share. What is the required rate of return on this stock implied by the dividend-growth model?
   A) 8.23%
   B) 12.2%
   C) 12.6%
   D) 13.9%
5. The Frisco Company just paid $2.20 as its annual dividend. The dividends have been increasing at a rate of 4% annually and this trend is expected to continue. The stock is currently selling for $63.60 a share. What is the rate of return on this stock?
   A) 3.46%
   B) 3.60%
   C) 7.46%
   D) 7.60%
6. ABC Company stock currently has a market value equivalent to its intrinsic value. Marco perceives that ABC Company is increasing its level of risk and therefore Marco increases his required rate of return on ABC stock. This change in the required rate of return
   A) will reduce the intrinsic value of ABC stock to Marco.
   B) will increase the intrinsic value of ABC stock to Marco.
   C) will change the intrinsic value but the direction of the change cannot be determined.
   D) is a signal to Marco that he should buy more ABC Company stock.
7. In applying the variable-growth dividend valuation model to a company's stock, analysts frequently define the growth rate, g, as equal to
   A) ROE multiplied by the firm's retention rate.
   B) ROE divided by the dividend payout ratio.
   C) the dividend payout ratio multiplied by the firm's retention rate.
   D) P/E multiplied by the dividend payout ratio.
8. A company has an annual dividend growth rate of 5% and a retention rate of 40%. The company's dividend payout ratio is
   A) 35%.
   B) 40%.
   C) 45%.
   D) 60%.
9. Which of the following statements concerning the constant-growth dividend valuation model is (are) correct?
   I. One simple method of estimating the dividend growth rate is to analyze the historical pattern of dividends.
   II. The expected total return equals the return from capital gains plus the return from dividends paid.
   III. The model is applicable to growth firms with initially high growth rates.
   IV. The intrinsic value calculated using this method can change from one investor to another if their risk-return payoffs differ.
   A) I and IV only
   B) II and III only
   C) I, II and IV only
   D) I, II and III only
10. The variable-growth dividend valuation model
    A) develops the value of a stock using the future value of dividends minus a rate of capital gain growth.
    B) is valuable because it accounts for the general growth patterns of most companies.
    C) is invalid if at any point in time the growth rate exceeds the required rate of return.
    D) assumes the rate of dividend growth will vary indefinitely.