Fin300 Final

Name: ______________________________ Student ID: _________________________

1. You own 490 shares of Abco, Inc. stock. The company has stated that it plans to issuing a dividend of $0.70 a share at the end of this year and then issuing a final liquidating dividend of $3.10 a share at the end of next year. Your required rate of return is 8 percent. Ignoring taxes, what is the value of one share of this stock today?

a. $ 3.52

b. $ 3.80

c. $ 3.31

d. $ 3.72

e. $ 4.54

2. Merlo, Inc. maintains a debt-equity ratio of 0.60 and follows a residual dividend policy. The company has after-tax earnings of $3,400 for the year and needs $3,000 for new investments. What is the total amount Merlo will pay out in dividends this year?

a. $ 0

b. $ 1,125

c. $ 1,725

d. $ 1,525

e. $ 250

3. A firm has a market value equal to its book value. Currently, the firm has excess cash of $900 and other assets of $5,100. Equity is worth $6,000. The firm has 600 shares of stock outstanding and net income of $700. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?

a. $ 1.37

b. $ 1.30

c. $ 1.76

d. $ 1.17

e. $ 2.67

4. A firm has a market value equal to its book value. Currently, the firm has excess cash of $3,300 and other assets of $4,700. Equity is worth $8,000. The firm has 800 shares of stock outstanding and net income of $1,000. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

a. 150 shares

b. 480 shares

c. 470 shares

d. 810 shares

e. 490 shares

5. A firm has a market value equal to its book value. Currently, the firm has excess cash of $6,000 and other assets of $18,000. Equity is worth $24,000. The firm has 400 shares of stock outstanding and net income of $2,000. What will the stock price per share be if the firm...