# Snider’s Hardwoods has a dividend payout ratio of 45 percent, a return on assets of 9.4 percent, and a debt-equity ratio of 0.38. What is the firm’s rate of growth?

A) 14.27% B) 12.56% C) 8.95% D) 10.40% E) 11.60% Answer: C

Explanation: Dividend per share = (0.60 × \$158,600) / 84,000 = \$1.13286

R = \$1.13286 / \$18.43 + 0.028 = 0.0895, or 8.95% Difficulty: 3 Hard

Section: 6.2 Estimates of Parameters in the Dividend Discount Model

Topic: Stock returns and yields Bloom’s: Level 4 Analyze AACSB: Analytical Thinking

73) Snider’s Hardwoods has a dividend payout ratio of 45 percent, a return on assets of 9.4 percent, and a debt-equity ratio of 0.38. What is the firm’s rate of growth?

A) 6.78% B) 7.39% C) 7.13% D) 6.55% E) 4.10% Answer: C

Explanation: g = (1 − 0.45) × [0.094 × (1 + 0.38)] = 0.0713, or 7.13%

Difficulty: 3 Hard

Section: 6.2 Estimates of Parameters in the Dividend Discount Model

Topic: Internal and sustainable growth rates

Bloom’s: Level 4 Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

74) Primary Colors has a debt-equity ratio of 0.56, a return on assets of 8.2 percent, and a dividend payout ratio of 45 percent. What is the firm’s rate of growth?

A) 6.04% B) 6.52% C) 8.13% D) 7.04% E) 7.26% Answer: D

Explanation: g = (1 − 0.45) × [0.082 × (1 + 0.56)] = 0.0704, or 7.04%

Difficulty: 3 Hard

Section: 6.2 Estimates of Parameters in the Dividend Discount Model

Topic: Internal and sustainable growth rates

Bloom’s: Level 4 Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

75) Tall Tree Timber has annual net income of \$213,640 and 72,000 shares of stock outstanding. Big Trees is a similar firm with similar growth opportunities that has 75,000 shares of stock outstanding with a market price of \$31.80 a share and earnings per share of \$1.48. What is the estimated value of Tall Tree Timber?

A) \$3,603,208

B) \$4,590,373

C) \$5,009,046

D) \$4,087,082

E) \$3,874,298

Explanation: Tall Tree Timber value = (\$31.80 / \$1.48) × \$213,640 = \$4,590,373

Difficulty: 3 Hard

Section: 6.3 Comparables

Topic: Stock valuation using multiples

Bloom’s: Level 4 Analyze AACSB: Analytical Thinking Accessibility: Keyboard Navigation

76) The Yarn Outlet has net income of \$87,400 for the year with 6,500 shares of stock outstanding. Big Knitter is a similar firm with similar growth opportunities that has 8,400 shares of stock outstanding with a market price of \$9.34 a share and earnings per share of \$.86. What is the estimated value of the Yarn Outlet?

A) \$1,016,279

B) \$837,040

C) \$1,142,105

D) \$751,620

E) \$949,205