Question 1

King of the Roost Chicken Farms has issued the following dividends. What would be the growth rate in dividends (rounded)?

Accepted Answer

A)  15% 
B)  25% 
C)  12% 
D)  21% 
A)  15% 
B)  25% 
C)  12% 
D)  21% B

Question 2

Which of the following is not an advantage of common stock financing?

Accepted Answer

A)  no fixed dividend obligation 
B)  can lower the firm's weighted cost of capital 
C)  allows the firm a greater degree of flexibility in financial planning 
D)  involves relatively high flotation costs 
A)  no fixed dividend obligation 
B)  can lower the firm's weighted cost of capital 
C)  allows the firm a greater degree of flexibility in financial planning 
D)  involves relatively high flotation costs D

Question 3

By-Your-Leave Travel Agency has reported the dividends listed below. What return could be expected? The price of the stock is $18. (Round the growth rate to the nearest whole percent)

Accepted Answer

A)  10.11% 
B)  12.02% 
C)  8.15% 
D)  9.74% 
A)  10.11% 
B)  12.02% 
C)  8.15% 
D)  9.74% A

Question 4

Over the past 5 years, Dippity Doo-Dah Party Dips' common stock earnings per share have grown from $0.62 to $0.91. If an investor in Dippity's stock is assumed to have a required rate of return of 14%, what is the current value of Dippity if its current dividend is 0.12? Assume EPS will continue to grow at a constant rate.

Accepted Answer

A)  $2.16 
B)  $1.62 
C)  $4.94 
D)  $2.00 
A)  $2.16 
B)  $1.62 
C)  $4.94 
D)  $2.00

Question 5

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 6

Which of the following is not a characteristic of common stock:

Accepted Answer

A)  has no maturity date 
B)  considered a permanent form of long-term financing 
C)  has claims on assets prior to those of preferred stock 
D)  is a residual form of ownership 
A)  has no maturity date 
B)  considered a permanent form of long-term financing 
C)  has claims on assets prior to those of preferred stock 
D)  is a residual form of ownership

Question 7

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 8

If the common stock of Comdisco pays an annual dividend of $0.28, has a PE ratio of 11 and closed at 25, what are the current earnings per share?

Accepted Answer

A)  $3.08 
B)  $2.27 
C)  $7.00 
D)  $1.12 
A)  $3.08 
B)  $2.27 
C)  $7.00 
D)  $1.12

Question 9

Dillinger, Inc. is planning to raise additional capital for expansion by selling 500,000 common shares at $16 each. The existing stockholders' equity section of their balance sheet is shown below. What will the retained earnings figure be immediately after the sale of the new equity?

Accepted Answer

A)  $12,252,000 
B)  $14,000,000 
C)  $4,752,000 
D)  $3,500,000 
A)  $12,252,000 
B)  $14,000,000 
C)  $4,752,000 
D)  $3,500,000

Question 10

What are some of the costs associated with new security offerings?

Accepted Answer

1. There are direct costs called an unde

Question 11

When Google went public the firm sold its stock in an unusual way. What was that method and how did it impact future sales of IPOs?

Accepted Answer

When Google sold its IPO, the company so

Question 12

Listed below are some of the responsibilities of investment bankers. Which of the following is NOT one of them?

Accepted Answer

A)  They can purchase securities 
B)  They market securities 
C)  They directly influence the objectives and direction of the company. 
D)  They arrange private loans and leases 
A)  They can purchase securities 
B)  They market securities 
C)  They directly influence the objectives and direction of the company. 
D)  They arrange private loans and leases

Question 13

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 14

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 15

List the responsibilities of investment bankers.

Accepted Answer

Investment bankers are an important sour

Question 16

Chill Pill Pharmaceuticals is expecting a growth rate of 14% for the next two years due to its new drug. Thereafter it should level to an 8% growth rate. The last dividend paid was $.65 per share. What price should the stock sell for if investors require 12% return.

Accepted Answer

A)  $18.14 
B)  $22.75 
C)  $19.47 
D)  $20.16 
A)  $18.14 
B)  $22.75 
C)  $19.47 
D)  $20.16

Question 17

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 18

All of the following are advantages of private security placements (over a public offering) except

Accepted Answer

A)  reduced flotation costs 
B)  greater flexibility 
C)  lower interest rates 
D)  save time 
A)  reduced flotation costs 
B)  greater flexibility 
C)  lower interest rates 
D)  save time

Question 19

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 20

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

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

King of the Roost Chicken Farms has issued the following dividends. What would be the growth rate in dividends (rounded)?

Which of the following is not an advantage of common stock financing?

By-Your-Leave Travel Agency has reported the dividends listed below. What return could be expected? The price of the stock is $18. (Round the growth rate to the nearest whole percent)

The zero growth method is used to value

Which of the following is not a characteristic of common stock:

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.

If the common stock of Comdisco pays an annual dividend of $0.28, has a PE ratio of 11 and closed at 25, what are the current earnings per share?

Dillinger, Inc. is planning to raise additional capital for expansion by selling 500,000 common shares at $16 each. The existing stockholders' equity section of their balance sheet is shown below. What will the retained earnings figure be immediately after the sale of the new equity?

What are some of the costs associated with new security offerings?

When Google went public the firm sold its stock in an unusual way. What was that method and how did it impact future sales of IPOs?

Listed below are some of the responsibilities of investment bankers. Which of the following is NOT one of them?

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

Many preferred stocks are treated as ____ in determining their values.

List the responsibilities of investment bankers.

Chill Pill Pharmaceuticals is expecting a growth rate of 14% for the next two years due to its new drug. Thereafter it should level to an 8% growth rate. The last dividend paid was $.65 per share. What price should the stock sell for if investors require 12% return.

Stockholders' equity includes all of the following except:

All of the following are advantages of private security placements (over a public offering) 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 returns from most common stocks are

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

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

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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?