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1. Sultan Services has 1.2 million shares outstanding. Itexpects earnings at the end of the year of $5.6 million. Sultanpays out 60% of its earnings in total - 40% paid out as dividendsand 20% used to repurchase shares. If Sultan's earnings areexpected to grow by 7% per year, these payout rates do not change,and Sultan's equity cost of capital is 9%, what is Sultan's shareprice?

Question  options:A)$22.40B)$56.00C)$93.33D)$140.00

2. A risk-free, zero-coupon bond has 15 yearsto maturity. Which of the following is closest to the price per$100 of face value that the bond will trade at if the YTM is7%?

Question options: A) $29.55 B) $32.68 C)$36.24 D) $38.78

3.Which of the following statements isFALSE?

A) As firms mature, their earnings exceed their investmentneeds and they begin to pay dividends.

B) Total return equals earnings multiplied by the dividendpayout rate.

C) Cutting the firm's dividend to increase investment willraise the stock price if, and only if, the new investments have apositive net present value (NPV).

D) We cannot use the constant dividend growth model to valuethe stock of a firm with rapid or changing growth.

4. Which of the following statements isFALSE?

Question options:

A) Estimating dividends, especially for thedistant future, is difficult.

B) A firm can only pay out its earnings toinvestors or reinvest their earnings.

C) Successful young firms often have highinitial earnings growth rates.

D) According to the constant dividend growthmodel, the value of the firm depends on the current dividend level,divided by the equity cost of capital plus the growthrate.


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