In general, the higher the retention ratio A) the higher the future growth rate of the company

1. In general, the higher the retention ratio
   A) the higher the future growth rate of the company.
   B) the higher the dividends per share of common stock.
   C) the higher the future debt-equity ratio.
   D) the lower the future book value per share.

A

2. Martin's Inc. is expected to pay annual dividends of $2.50 a share for the next three years. After that, dividends are expected to increase by 3% annually. What is the current value of this stock to you if you require a 9% rate of return on this investment?
   A) $39.47
   B) $40.11
   C) $41.81
   D) $42.92

A

3. MBA Inc. will pay a dividend for the first time at the end of 2013. It projects the following dividend per share:
   2013 $1.50
   2014 $2.00
   2015 $2.50
   Beginning with 2016 dividends will grow at 4% per year. The required rate of return is 12%. The intrinsic value of MBA shares is
   A) $25.37.
   B) $27.85.
   C) $28.96.
   D) $38.50.

B

4. DMC3 Inc. will pay no dividend for 2013 or 2014. At the end of 2015, it will pay a dividend of $2.50.
   Thereafter dividends will grow at 4% per year. The required rate of return is 12%. The intrinsic value of DMC3 shares is
   A) $32.50.
   B) $35.00.
   C) $24.91.
   D) $0.00.

C

5. A stock's internal rate of return (IRR) is the discount rate that cause the present value of future dividends and the price at which a stock is expected to be sold to equal the current price of the stock.

TRUE

6. Neither the P/E approach nor the dividends-and-earnings approach rely on dividends as the key input into the valuation of a stock.

TRUE

7. The dividends-and-earnings approach does not actually require that a stock pay dividends.

TRUE

8. The investor's internal rate of return is always equal to the firm's rate of return on equity.

FALSE

9. The value of a stock using the price to cash flow approach is to multiply the P/E ratio times
   operating cash flow divided by the number of shares outstanding.

FALSE

10. High price/sales multiples go with high profit margins.

TRUE