9. Which one of the following is not a reason a firm may decide to repurchase it
ID: 2736500 • Letter: 9
Question
9. Which one of the following is not a reason a firm may decide to repurchase its own stock. (Points : 3) future corporate needsfinancial restructuring
investment
disposition of excess warrants Question 10.10. The returns investors receive from holding common stocks may be in two forms. They are (Points : 3) cash dividend payments and capital gains
future earnings and treasury stock
stock splits and stock dividends
cash dividends and stock dividends Question 11.11. The constant growth dividend valuation model does not hold when (Points : 3) ke is greater than g
dividends are growing faster than 4 percent
g is greater than ke
the current dividend is known Question 12.12. What is the value of a share of stock of HOV Inc. to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent. (Points : 3) $24.00
$18.34
$25.68
$19.62 9. Which one of the following is not a reason a firm may decide to repurchase its own stock. (Points : 3) future corporate needs
financial restructuring
investment
disposition of excess warrants
Explanation / Answer
(9) Which one of the following is not a reason a firm may decide to repurchase its own stock.
Answer: Future corporate needs.
Note: Future corporate needs requires increase in stock.That's why, more money available for future corporate needs.So, It is not a reason a firm may decide to repurchase its own stock.
(10) The returns investors receive from holding common stocks may be in two forms. They are
Answer: Cash dividend payments and Capital gains
Note:Cash dividend payments and capital gains are the two forms of return which investor receives for holding common stock for long time.
(11) The constant growth dividend valuation model does not hold when
Answer: g is greater than ke
Note: When g is greater than Ke ,than,Price of stock is going to Infinite.It is not acceptable condition.So, The constant growth dividend valuation model does not hold in this condition.
(12) Computation of the value of stock.We have,
According to dividiend valuation model,
Price of stock = D0 (1+g) / (Ke - g)
Where,
D0 = Current dividend = $ 1.20
g = Growth rate = 7%
Ke = Require rate of return = 12%
Price of stock = 1.20(1.07) / (0.12 - 0.07)
Price of stock = 1.284 / 0.05 = $ 25.68
Hence,the price of stock is $ 25.68
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