Question 1

When a stock is split 2 for 1, then the figure on the firm's balance sheet is cut in half.

Accepted Answer

A) value of the common stock 
B) par value 
C) capital surplus 
D) retained earnings 
A) value of the common stock 
B) par value 
C) capital surplus 
D) retained earnings

Question 2

The market value of common stock is primarily based on

Accepted Answer

A) the firm's future earnings 
B) book value 
C) total assets 
D) retained earnings 
A) the firm's future earnings 
B) book value 
C) total assets 
D) retained earnings

Question 3

The current price of Zebar is $32.00 and the current dividend is $.60.What is an investor's required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8 percent?

Accepted Answer

A) 9.88% 
B) 11.38% 
C) 18.75% 
D) 10.03% 
A) 9.88% 
B) 11.38% 
C) 18.75% 
D) 10.03%

Question 4

Which of the following are reasons why large multinational corporations may sell equity in international markets rather than selling stock only in the country in which they are domiciled?

Accepted Answer

A) Global equity offerings result in higher price per share. 
B) The existence of a 12-hour per day trading schedule 
C) Higher positive returns around the time of the announcement to sell in global markets 
D) Private placements are not an option. 
A) Global equity offerings result in higher price per share. 
B) The existence of a 12-hour per day trading schedule 
C) Higher positive returns around the time of the announcement to sell in global markets 
D) Private placements are not an option.

Question 5

All of the following are reasons that companies hold treasury stock EXCEPT:

Accepted Answer

A) to comply with SEC regulations that a certain amount of company shares must be kept by the company. 
B) disposition of excess cash 
C) financial restructuring 
D) future corporate needs 
A) to comply with SEC regulations that a certain amount of company shares must be kept by the company. 
B) disposition of excess cash 
C) financial restructuring 
D) future corporate needs

Question 6

Many preferred stocks are treated as in determining their values.

Accepted Answer

A) Fixed assets 
B) Perpetuities 
C) Convertible securities 
D) Constant growth securities 
A) Fixed assets 
B) Perpetuities 
C) Convertible securities 
D) Constant growth securities

Question 7

The zero growth method is used to value

Accepted Answer

A) common stock 
B) required rate of return 
C) bonds 
D) preferred stock 
A) common stock 
B) required rate of return 
C) bonds 
D) preferred stock

Question 8

In the constant-growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus:

Accepted Answer

A) Yield-to-maturity 
B) Cost of capital 
C) Present value yield 
D) Price appreciation yield 
A) Yield-to-maturity 
B) Cost of capital 
C) Present value yield 
D) Price appreciation yield

Question 9

In marketing a new security issue, the investment banker assumes the risk of not being able to sell the security at a favorable price in each of the following cases except:

Accepted Answer

A) a best efforts offering 
B) a negotiated underwriting 
C) a competitively bid underwriting 
D) assumes the risk in all of the above 
A) a best efforts offering 
B) a negotiated underwriting 
C) a competitively bid underwriting 
D) assumes the risk in all of the above

Question 10

What is the value of a share of stock of HOV Inc.to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent.

Accepted Answer

A) $24.00 
B) $18.34 
C) $25.68 
D) $19.62 
A) $24.00 
B) $18.34 
C) $25.68 
D) $19.62

Question 11

Assume Zero-Sum Enterprise pays an annual dividend of $1.40 per share and that neither earnings nor dividends are expected to grow in the future.What is the value of Zero-Sum's stock to an investor who requires a 14 percent rate of return?

Accepted Answer

A) $14.00 
B) $10.00 
C) $20.00 
D) 0 
A) $14.00 
B) $10.00 
C) $20.00 
D) 0

Question 12

From an accounting standpoint, stock dividends involve a transfer from the

Accepted Answer

A) common stock account 
B) cash account 
C) retained earnings account 
D) capital surplus account 
A) common stock account 
B) cash account 
C) retained earnings account 
D) capital surplus account

Question 13

Stockholders' equity includes all of the following except:

Accepted Answer

A) Common stock at par 
B) Treasury stock 
C) Contributed capital in excess of par 
D) Retained earnings 
A) Common stock at par 
B) Treasury stock 
C) Contributed capital in excess of par 
D) Retained earnings

Question 14

Zimmer's common stock sells for $37 and its dividend is expected to grow at a rate of 8 percent annually.What is the expected dividend (D1) given that an investor requires a return of 16 percent?

Accepted Answer

A) $2.74 
B) $3.20 
C) $5.92 
D) $2.96 
A) $2.74 
B) $3.20 
C) $5.92 
D) $2.96

Question 15

The rights of stockholders to share equally on a per share basis in any distributions of corporate earnings is known as ____.

Accepted Answer

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

Question 16

Over the past 10 years the dividends of Allegro have grown from $0.45 to $1.82 per share.Determine the value of Allegro's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years.

Accepted Answer

A) $36.40 
B) $41.86 
C) $43.68 
D) $20.93 
A) $36.40 
B) $41.86 
C) $43.68 
D) $20.93

Question 17

What is the rate of return to an investor in the stock of Bajo, Inc.if the current dividend of $0.80 is not expected to change in the foreseeable future? The current price of Bajo is $13.25.

Accepted Answer

A) 6.04% 
B) 8.0% 
C) 24.15% 
D) 11.06% 
A) 6.04% 
B) 8.0% 
C) 24.15% 
D) 11.06%

Question 18

In stock quotations, the last column, showing the net change, indicates the net change in

Accepted Answer

A) a share's price during the day 
B) the dividend yield 
C) the closing price from the previous day's close 
D) a share's high price during the day 
A) a share's price during the day 
B) the dividend yield 
C) the closing price from the previous day's close 
D) a share's high price during the day

Question 19

The common stock of Kute & Kuddly Kids Clothes, Inc.currently sells for $88.50 and its current (D0) dividend is $1.10.Determine the implied growth rate for Kute assuming that an investor's required rate of return is 14% and that earnings and dividends are expected to grow at a constant rate.

Accepted Answer

A) 13.9% 
B) 12.3% 
C) 13.8% 
D) 12.6% 
A) 13.9% 
B) 12.3% 
C) 13.8% 
D) 12.6%

Question 20

The earnings of Foggy Futures Weather Forecasting Company are expected to grow at an annual rate of 14% over the next 5 years and then slow to a constant rate of 10% per year.Foggy currently pays a dividend of $0.36 per share.What is the value of Foggy's stock to an investor who requires a 16% rate of return?

Accepted Answer

A) $7.97 
B) $7.76 
C) $14.42 
D) $11.11 
A) $7.97 
B) $7.76 
C) $14.42 
D) $11.11

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

When a stock is split 2 for 1, then the figure on the firm's balance sheet is cut in half.

The market value of common stock is primarily based on

The current price of Zebar is $32.00 and the current dividend is $.60.What is an investor's required rate of return on Zebar if dividends are expected to grow perpetually at a compound annual rate of 8 percent?

Which of the following are reasons why large multinational corporations may sell equity in international markets rather than selling stock only in the country in which they are domiciled?

All of the following are reasons that companies hold treasury stock EXCEPT:

Many preferred stocks are treated as in determining their values.

The zero growth method is used to value

In the constant-growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus:

In marketing a new security issue, the investment banker assumes the risk of not being able to sell the security at a favorable price in each of the following cases except:

What is the value of a share of stock of HOV Inc.to an investor who requires a 12 percent rate of return if HOV's current dividend is $1.20? Assume earnings and dividends are expected to grow at a compound annual rate of 7 percent.

Assume Zero-Sum Enterprise pays an annual dividend of $1.40 per share and that neither earnings nor dividends are expected to grow in the future.What is the value of Zero-Sum's stock to an investor who requires a 14 percent rate of return?

From an accounting standpoint, stock dividends involve a transfer from the

Stockholders' equity includes all of the following except:

Zimmer's common stock sells for $37 and its dividend is expected to grow at a rate of 8 percent annually.What is the expected dividend (D1) given that an investor requires a return of 16 percent?

The rights of stockholders to share equally on a per share basis in any distributions of corporate earnings is known as ____.

Over the past 10 years the dividends of Allegro have grown from $0.45 to $1.82 per share.Determine the value of Allegro's common stock to an investor who requires a 20% rate of return, assuming that dividends continue growing at the same rate as they grew over the past 10 years.

What is the rate of return to an investor in the stock of Bajo, Inc.if the current dividend of $0.80 is not expected to change in the foreseeable future? The current price of Bajo is $13.25.

In stock quotations, the last column, showing the net change, indicates the net change in

The common stock of Kute & Kuddly Kids Clothes, Inc.currently sells for $88.50 and its current (D0) dividend is $1.10.Determine the implied growth rate for Kute assuming that an investor's required rate of return is 14% and that earnings and dividends are expected to grow at a constant rate.

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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