The Required Returns of Stocks X and Y Are RX

question 32

Multiple Choice

The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

• A) If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate.
• B) If Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X.
• C) If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price.
• D) The stocks must sell for the same price.
• E) Stock Y must have a higher dividend yield than Stock X.
• Multiple Choice: Problems
• Most of these problems are straightforward and only moderately difficult. However, a few of the later ones are relatively difficult and should be used primarily on take-home exams for students with some experience with Excel. Problems with * in the topic line are nonalgorithmic.

Recognize the importance and utility of the Statement of Cash Flows in financial analysis.

Determine the impact of equipment purchases, sales, and depreciation on cash flow statements.

Distinguish between noncash investing and financing activities and their disclosure on the Statement of Cash Flows.

Identify transactions that increase cash and those that decrease cash.