4. Kinston Industries just announced that it will cut its dividend from $3.00 to $2.00 per share and use the extra funds to expand its operations. Kinston's dividends were expected to grow at a 2% rate, and its share price was $37.50. With the new expansion, Kinston dividends are expected to grow at a 5% rate. Kinston's share price after this announcement should be:

a. $20.00

b. $30.00

c. $37.50

d. $40.00

5. Which of the following statements is FALSE?

a. If the profit opportunities from having private information are large, other individuals will attempt to gain the expertise and devote the resources needed to acquire it.

b. When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information.

c. When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently.

d. Since stock markets aggregate the information and view of many different investors, we expect the stock price to react slowly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock.

Chapter 9

Problems:

Use the following information to answer the question(s) below.

Company	Ticker	Price per Share	Earnings per Share	Book Value per Share
Abbott Labs	ABT	54.35	3.69	13.79
Bristol-Myers-Squibb	BMY	25.45	1.93	7.33
GlaxoSmithKline	GSK	41.3	3.15	6.03
Johnson & Johnson	JNJ	62.6	4.58	18.27
Merck	MRK	36.25	3.81	10.86
Pfizer	PFE	$18.30	$1.20	8.19

1. Assuming that Novartis AG (NVS) has an EPS of $3.35, what should Novartis stock price be, based upon the average P/E ratio for its competitors?

2. Assuming that Novartis AG (NVS) has an EPS of $3.35, what is the highest expected stock price for Novartis, based upon the P/E ratios for its competitors?