Question 1

In the constant growth dividend valuation model, the required rate of return on a common stock is equal to the sum of the ____.

Accepted Answer

A) capital gains yield and cost of capital 
B) present value yield and dividend yield 
C) cost of capital and dividend yield 
D) capital gains yield and dividend yield 
A) capital gains yield and cost of capital 
B) present value yield and dividend yield 
C) cost of capital and dividend yield 
D) capital gains yield and dividend yield D

Question 2

The book value per share of common stock is calculated by dividing by the number of shares outstanding

Accepted Answer

A) market value of common stock 
B) total assets 
C) total stockholders' equity plus preferred stock 
D) total common stockholders' equity 
A) market value of common stock 
B) total assets 
C) total stockholders' equity plus preferred stock 
D) total common stockholders' equity D

Question 3

Haulin' It Towing Company is selling a stock for $16.The stock just paid a dividend of $.60 and this dividend is expected to grow by 15% per year for three years.After that it will grow at a constant rate of 4%.The stock's beta is 1.7, the risk-free rate of interest is 1.75% and the market risk premium is 5.25%.Should you buy the stock? (Round to dollars and cents or two decimal points)

Accepted Answer

A) No, the stock is not a good value since it is only worth about $8. 
B) No, the stock is not a good value since it is only worth about $12. 
C) Yes, the stock is a good value since it should sell for about $25. 
D) Yes, the stock is a good value since it should sell for about $18. 
A) No, the stock is not a good value since it is only worth about $8. 
B) No, the stock is not a good value since it is only worth about $12. 
C) Yes, the stock is a good value since it should sell for about $25. 
D) Yes, the stock is a good value since it should sell for about $18. B

Question 4

The earnings and dividends of Nebula Computer Co.are expected to grow at an annual rate of 15 percent over the next 4 years and then slow to a constant growth rate of 8 percent per year.Nebula currently pays a dividend of $0.50 per share.What is the value of Nebula stock to an investor who requires a 14 percent rate of return?

Accepted Answer

A) $9.31 
B) $15.73 
C) $11.35 
D) $2.04 
A) $9.31 
B) $15.73 
C) $11.35 
D) $2.04

Question 5

The returns from most common stocks are

Accepted Answer

A) positively correlated with each other 
B) negatively correlated with each other 
C) uncorrelated with each other 
D) correlated to future forecasted earnings 
A) positively correlated with each other 
B) negatively correlated with each other 
C) uncorrelated with each other 
D) correlated to future forecasted earnings

Question 6

Which of the following statements about common stock voting is/are correct?

Accepted Answer

A) Only statement I is correct 
B) Only statement II is correct 
C) Both statement I and statement II are correct 
D) Neither statement I nor statement II is correct. 
A) Only statement I is correct 
B) Only statement II is correct 
C) Both statement I and statement II are correct 
D) Neither statement I nor statement II is correct.

Question 7

What is the current value of the common stock of Clump Dump Kitty Litter, Limited if you know the current dividend yield is 6.14%, the PE is 16, and the annual dividend is $1.35?

Accepted Answer

A) $21.60 
B) $21.99 
C) $8.29 
D) $98.24 
A) $21.60 
B) $21.99 
C) $8.29 
D) $98.24

Question 8

A common stock's book value is calculated

Accepted Answer

A) as a multiple of the stock's price/earning ratio 
B) on the basis of income statement ratios 
C) on the basis of balance sheet figures 
D) on the value of income statement figures 
A) as a multiple of the stock's price/earning ratio 
B) on the basis of income statement ratios 
C) on the basis of balance sheet figures 
D) on the value of income statement figures

Question 9

A procedure that allows a firm to file a master registration statement with the SEC and then sell an offering of common stock in small increments is known as .

Accepted Answer

A) a Green Shoe option 
B) an IPO 
C) rule 215 
D) a shelf registration 
A) a Green Shoe option 
B) an IPO 
C) rule 215 
D) a shelf registration

Question 10

Common stockholders have a number of general rights, including all of the following except:

Accepted Answer

A) voting rights 
B) management rights 
C) asset rights 
D) dividend rights 
A) voting rights 
B) management rights 
C) asset rights 
D) dividend rights

Question 11

The constant growth dividend valuation model does not hold when

Accepted Answer

A) ke is greater than g 
B) dividends are growing faster than 4 percent 
C) g is greater than ke 
D) the current dividend is known 
A) ke is greater than g 
B) dividends are growing faster than 4 percent 
C) g is greater than ke 
D) the current dividend is known

Question 12

Why do closely held firms need to have an outside appraiser to determine their value? What are the reasons for valuation?

Accepted Answer

In general a corporation's value is dete

Question 13

A firm that wishes to raise additional equity capital by selling a portion of the existing owners' stock while maintaining control of the firm should consider a .

Accepted Answer

A) stock split 
B) stock dividend 
C) share repurchase 
D) separate class of nonvoting stock 
A) stock split 
B) stock dividend 
C) share repurchase 
D) separate class of nonvoting stock

Question 14

A change in the market price of an asset will occur as a result of changes in:

Accepted Answer

A) investors' required rates of return 
B) investors' expected returns from the asset 
C) book value of the asset 
D) investors' required rates of return and their expected returns from the asset 
A) investors' required rates of return 
B) investors' expected returns from the asset 
C) book value of the asset 
D) investors' required rates of return and their expected returns from the asset

Question 15

Stockholders' equity equals

Accepted Answer

A) both preferred stock and common equity 
B) total claims 
C) additional paid-in capital plus capital surplus 
D) total liabilities and total surplus 
A) both preferred stock and common equity 
B) total claims 
C) additional paid-in capital plus capital surplus 
D) total liabilities and total surplus

Question 16

A firm may use a stock repurchase .

Accepted Answer

A) as part of a financial restructuring 
B) to dispose of excess cash 
C) to reduce overhead 
D) as part of a financial restructuring and to dispose of excess cash 
A) as part of a financial restructuring 
B) to dispose of excess cash 
C) to reduce overhead 
D) as part of a financial restructuring and to dispose of excess cash

Question 17

Common stock dividends normally are paid

Accepted Answer

A) monthly 
B) quarterly 
C) semi-annually 
D) annually 
A) monthly 
B) quarterly 
C) semi-annually 
D) annually

Question 18

If Crafty Creatures Cage Maker stock sells for $18 per share and the firm nets $12 per share, the difference is called the:

Accepted Answer

A) Underwriting Spread 
B) Profit 
C) SEC charge 
D) Refund 
A) Underwriting Spread 
B) Profit 
C) SEC charge 
D) Refund

Question 19

When Facebook launched its IPO, the sale of the stock did not go as planned. In fact, class action lawsuits have been filed. What is the accusation against Facebook?

Accepted Answer

The lawsuits cite improprieties on the p

Question 20

The book value of an asset represents

Accepted Answer

A) the market value 
B) the discounted cash flow value 
C) the historic acquisition cost of the asset 
D) stockholders' acquisition value 
A) the market value 
B) the discounted cash flow value 
C) the historic acquisition cost of the asset 
D) stockholders' acquisition value

Exam 7: Common Stock: Characteristics, Valuation, and Issuance

In the constant growth dividend valuation model, the required rate of return on a common stock is equal to the sum of the ____.

The book value per share of common stock is calculated by dividing by the number of shares outstanding

The returns from most common stocks are

Which of the following statements about common stock voting is/are correct?

What is the current value of the common stock of Clump Dump Kitty Litter, Limited if you know the current dividend yield is 6.14%, the PE is 16, and the annual dividend is $1.35?

A common stock's book value is calculated

A procedure that allows a firm to file a master registration statement with the SEC and then sell an offering of common stock in small increments is known as .

Common stockholders have a number of general rights, including all of the following except:

The constant growth dividend valuation model does not hold when

Why do closely held firms need to have an outside appraiser to determine their value? What are the reasons for valuation?

A firm that wishes to raise additional equity capital by selling a portion of the existing owners' stock while maintaining control of the firm should consider a .

A change in the market price of an asset will occur as a result of changes in:

Stockholders' equity equals

A firm may use a stock repurchase .

Common stock dividends normally are paid

If Crafty Creatures Cage Maker stock sells for $18 per share and the firm nets $12 per share, the difference is called the:

When Facebook launched its IPO, the sale of the stock did not go as planned. In fact, class action lawsuits have been filed. What is the accusation against Facebook?

The book value of an asset represents

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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