Chapter 4: Q.9B (page 397)
Which of the following is not a governmental structural policy that supply-side economists believe would promote long-term growth in an economy?
a. A redistributive tax system.
b. A promotion of competition.
c. Minimal government interference in the economy.
Answer
a. A redistributive tax system
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a. Computer stocks currently provide an expected rate of return of 16%. MBI, a large computer company, will pay a year-end dividend of \(2 per share. If the stock is selling at \)50 per share, what must be the market’s expectation of the growth rate of MBI dividends?
b. If dividend growth forecasts for MBI are revised downward to 5% per year, what will happen to the price of MBI stock? What (qualitatively) will happen to the company’s price–earnings ratio?.
The risk-free rate of return is 5%, the required rate of return on the market is 10%, and High-Flyer stock has a beta coefficient of 1.5. If the dividend per share expected during the coming year, D 1 is $2.50 and g = 4%, at what price should a share sell?
In what circumstances is it most important to use multistage dividend discount models rather than constant-growth models?
A firm has a tax burden ratio of .75, a leverage ratio of 1.25, an interest burden of .6, anda return on sales of 10%. The firm generates $2.40 in sales per dollar of assets. What isthe firm’s ROE?
A company’s current ratio is 2. If the company uses cash to retire notes payable due within one year, would this transaction increase or decrease the current ratio? What about the asset turnover ratio?
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