Question 1

The zero growth dividend valuation model is used when a firm's future dividends are expected to remain constant,

Accepted Answer

A)  so the value of the firm should also remain constant 
B)  so the required rate of return should also remain constant 
C)  and the firm can not be valued 
D)  forever 
A)  so the value of the firm should also remain constant 
B)  so the required rate of return should also remain constant 
C)  and the firm can not be valued 
D)  forever

Question 2

What are the disadvantages of owning minority interest in a closely held corporation and how can this be overcome?

Accepted Answer

A minority interest investment in a clos

Question 3

From the following stock quotation, what is BLT's dividend yield? 
BLT $ \quad$ 1.20 $ \quad$ 4.3 $ \quad$ 19 $ \quad$ 1667 $ \quad$ 29.50 $ \quad$ 29 $ \quad$ 29 $ \quad$ -.25

Accepted Answer

A)  1.2% 
B)  12% 
C)  4.3% 
D)  19% 
A)  1.2% 
B)  12% 
C)  4.3% 
D)  19%

Question 4

____ result in what is known as treasury stock.

Accepted Answer

A)  Stock dividends 
B)  Stock repurchases 
C)  Stock splits 
D)  Reverse stock splits 
A)  Stock dividends 
B)  Stock repurchases 
C)  Stock splits 
D)  Reverse stock splits

Question 5

What is the current value of Frocks & Socks Clothiers, Inc. to an investor who has a required rate of return of 12 percent? The current dividend is $1.00 and the dividends are expected to grow 8 percent per year for 3 years. At the end of 3 years the investor expects to sell the security for $76.

Accepted Answer

A)  $79.51 
B)  $56.90 
C)  $51.13 
D)  $76.00 
A)  $79.51 
B)  $56.90 
C)  $51.13 
D)  $76.00

Question 6

If the general level of interest rates in the economy moves up, then investors will require a ____ rate of return on securities, and, in general, stock prices should ____, ceteris paribus.

Accepted Answer

A)  lower, decline 
B)  higher, increase 
C)  higher, decline 
D)  lower, increase 
A)  lower, decline 
B)  higher, increase 
C)  higher, decline 
D)  lower, increase

Question 7

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

Question 8

AVIX has 6.8 million shares outstanding and the firm's charter provides for a majority voting procedure. The company has seven directors up for reelection. What is the minimum number of shares needed to ensure the election of one director?

Accepted Answer

A)  850,001 
B)  5,950,001 
C)  3,400,001 
D)  none of the above 
A)  850,001 
B)  5,950,001 
C)  3,400,001 
D)  none of the above

Question 9

Bellbottom Gongs, Inc. pays a quarterly dividend of $0.70, has a PE ratio of 14 and closed yesterday at $48.25. What is the dividend yield?

Accepted Answer

A)  5.45% 
B)  1.45% 
C)  5.8% 
D)  7.25% 
A)  5.45% 
B)  1.45% 
C)  5.8% 
D)  7.25%

Question 10

The stock of Melody Music City is selling for $37.50 and pays a current annual dividend of $1.10. What is the implied growth rate of dividends for this firm (assume dividends are expected to grow at a constant rate) if an investor's required rate of return is 14 percent?

Accepted Answer

A)  11.07% 
B)  14.0% 
C)  11.4% 
D)  10.75% 
A)  11.07% 
B)  14.0% 
C)  11.4% 
D)  10.75%

Question 11

If the stock of Sun Computers is selling for $34 and the current dividend is $0.48, what is the implied constant growth rate of dividends to an investor who requires a 14% rate of return?

Accepted Answer

A)  12.54% 
B)  12.41% 
C)  14.00% 
D)  15.41% 
A)  12.54% 
B)  12.41% 
C)  14.00% 
D)  15.41%

Question 12

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 13

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 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

A ____ is a group of underwriters who agree to underwrite a new issue in order to spread the risk.

Accepted Answer

A)  purchasing syndicate 
B)  cartel 
C)  bidding group 
D)  financial institution 
A)  purchasing syndicate 
B)  cartel 
C)  bidding group 
D)  financial institution

Question 16

High Brow Cow Farms, producers of the finest dairy products, has common stock that sells for $54. Dividends are expected to continue to grow at a rate of 8% annually. If investors in High Brow require a 13% rate of return, what is the current dividend?

Accepted Answer

A)  $2.70 
B)  $2.50 
C)  $4.00 
D)  $3.25 
A)  $2.70 
B)  $2.50 
C)  $4.00 
D)  $3.25

Question 17

If competition in an industry increases, the future growth potential should

Accepted Answer

A)  decrease 
B)  increase 
C)  not be affected 
D)  be negative 
A)  decrease 
B)  increase 
C)  not be affected 
D)  be negative

Question 18

A firm may use a stock repurchase for all of the following reasons except

Accepted Answer

A)  to dispose of excess cash 
B)  to increase retained earnings 
C)  as part of a financial restructuring 
D)  to reduce takeover risk 
A)  to dispose of excess cash 
B)  to increase retained earnings 
C)  as part of a financial restructuring 
D)  to reduce takeover risk

Question 19

During the past 8 years, UTX Company common stock dividends have grown from $2.70 to $5.00 per share (currently). Determine the value of UTX common stock to an investor who requires a 16% rate of return, assuming that dividends continue growing for the foreseeable future at the same rate as over the past 8 years.

Accepted Answer

A)  $62.50 
B)  $31.25 
C)  $67.50 
D)  $46.96 
A)  $62.50 
B)  $31.25 
C)  $67.50 
D)  $46.96

Question 20

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

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

The zero growth dividend valuation model is used when a firm's future dividends are expected to remain constant,

What are the disadvantages of owning minority interest in a closely held corporation and how can this be overcome?

From the following stock quotation, what is BLT's dividend yield? BLT \quad 1.20 \quad 4.3 \quad 19 \quad 1667 \quad 29.50 \quad 29 \quad 29 \quad -.25

____ result in what is known as treasury stock.

What is the current value of Frocks & Socks Clothiers, Inc. to an investor who has a required rate of return of 12 percent? The current dividend is $1.00 and the dividends are expected to grow 8 percent per year for 3 years. At the end of 3 years the investor expects to sell the security for $76.

If the general level of interest rates in the economy moves up, then investors will require a ____ rate of return on securities, and, in general, stock prices should ____, ceteris paribus.

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

AVIX has 6.8 million shares outstanding and the firm's charter provides for a majority voting procedure. The company has seven directors up for reelection. What is the minimum number of shares needed to ensure the election of one director?

Bellbottom Gongs, Inc. pays a quarterly dividend of $0.70, has a PE ratio of 14 and closed yesterday at $48.25. What is the dividend yield?

The stock of Melody Music City is selling for $37.50 and pays a current annual dividend of $1.10. What is the implied growth rate of dividends for this firm (assume dividends are expected to grow at a constant rate) if an investor's required rate of return is 14 percent?

If the stock of Sun Computers is selling for $34 and the current dividend is $0.48, what is the implied constant growth rate of dividends to an investor who requires a 14% rate of return?

A firm may use a stock repurchase ____.

The market value of common stock is primarily based on

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

A ____ is a group of underwriters who agree to underwrite a new issue in order to spread the risk.

High Brow Cow Farms, producers of the finest dairy products, has common stock that sells for $54. Dividends are expected to continue to grow at a rate of 8% annually. If investors in High Brow require a 13% rate of return, what is the current dividend?

If competition in an industry increases, the future growth potential should

A firm may use a stock repurchase for all of the following reasons except

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:

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

Bond Refunding Analysis

Taxes

Filters

From the following stock quotation, what is BLT's dividend yield? BLT $\quad$ 1.20 $\quad$ 4.3 $\quad$ 19 $\quad$ 1667 $\quad$ 29.50 $\quad$ 29 $\quad$ 29 $\quad$ -.25

If the general level of interest rates in the economy moves up, then investors will require a rate of return on securities, and, in general, stock prices should , ceteris paribus.