Chapter 4: Q4B (page 436)
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 20% for two years and then at 4% thereafter. If the required return for Deployment Specialists is 8.5%, what is the intrinsic value of Deployment Specialists stock?
$30.60
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Jand, Inc., currently pays a dividend of \(1.22, which is expected to grow indefinitely at 5%. If the current value of Jand’s shares based on the constant-growth dividend discount model is \)32.03, what is the required rate of return?
Cash flow from investing activities excludes:
a. Cash paid for acquisitions.
b. Cash received from the sale of fixed assets.
c. Inventory increases due to a new (internally developed) product line.
d. All of the above
Which one of the following firms would be described as having below-average sensitivity to the state of the economy?
a. An asset play firm
b. A cyclical firm
c. A defensive firm
d. A stalwart firm
Cash flow from operating activities includes:
a. Inventory increases resulting from acquisitions.
b. Inventory changes due to changing exchange rates.
c. Interest paid to bondholders.
d. Dividends paid to stockholders.
The following questions have appeared on CFA examinations.
a. Which one of the following statements best expresses the central idea of countercyclical fiscal policy?
(1) Planned government deficits are appropriate during economic booms, and planned surpluses are appropriate during economic recessions.
(2) The balanced-budget approach is the proper criterion for determining annual budget policy.
(3) Actual deficits should equal actual surpluses during a period of deflation.
(4) Government deficits are planned during economic recessions, and surpluses are utilized to restrain inflationary booms.
b. Which one of the following propositions would a strong proponent of supply-side economics be most likely to stress?
(1) Higher marginal tax rates will lead to a reduction in the size of the budget deficit and lower interest rates because they expand government revenues.
(2) Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits.
(3) Income redistribution payments will exert little impact on real aggregate supply because they do not consume resources directly.
(4) A tax reduction will increase the disposable income of households. Thus, the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.
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