Question 1

All of the following are ways that securities are offered to the public in a public offering EXCEPT:

Accepted Answer

A)  Securities are sold through competitive bidding 
B)  Securities are sold through negotiated underwriting to a purchasing syndicate 
C)  Securities are sold through excess-market pricing 
D)  Securities are sold on a best efforts basis 
A)  Securities are sold through competitive bidding 
B)  Securities are sold through negotiated underwriting to a purchasing syndicate 
C)  Securities are sold through excess-market pricing 
D)  Securities are sold on a best efforts basis

Question 2

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 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

An option for selling securities reserved for larger firms ( MVE > $150,000,000) whereby the firm files a master registration statement and then can small increments of the stock over the next two years by filing a short form statement is called:

Accepted Answer

A)  SEC Registration 
B)  Red Herring 
C)  Shelf Registration 
D)  Commission Registration 
A)  SEC Registration 
B)  Red Herring 
C)  Shelf Registration 
D)  Commission Registration

Question 5

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 6

One of the assumptions of the constant growth dividend valuation model is that

Accepted Answer

A)  the investor's required rate of return is equal to the expected dividend yield. 
B)  the required rate of return is greater than the dividend growth rate 
C)  the required rate of return increases at a constant rate 
D)  the dividend rate (in dollars) will remain constant 
A)  the investor's required rate of return is equal to the expected dividend yield. 
B)  the required rate of return is greater than the dividend growth rate 
C)  the required rate of return increases at a constant rate 
D)  the dividend rate (in dollars) will remain constant

Question 7

List the various rights of common stockholders.

Accepted Answer

1. Dividend rights - they share equally

Question 8

In the constant-growth dividend valuation model, the required rate of return must be ____ the dividend growth rate in order for the formula price to be meaningful.

Accepted Answer

A)  less than 
B)  equal to 
C)  greater than 
D)  proportional to 
A)  less than 
B)  equal to 
C)  greater than 
D)  proportional to

Question 9

Helluva stock currently pays a dividend of $1.20 per share. Dividends are expected to increase at the rate of $0.10 per share for the next eight years. Determine the current value of Helluva common stock to an investor who expects to be able to sell the stock for $28 after 5 years. Assume that the investor requires a 12 percent rate of return on the security.

Accepted Answer

A)  $66 
B)  $28 
C)  $21.20 
D)  $15.88 
A)  $66 
B)  $28 
C)  $21.20 
D)  $15.88

Question 10

The difference between the selling price to the public of a new issue and the net the issuing firm actually receives is known as the

Accepted Answer

A)  negotiating spread 
B)  underwriting spread 
C)  bid spread 
D)  SEC cost 
A)  negotiating spread 
B)  underwriting spread 
C)  bid spread 
D)  SEC cost

Question 11

CPU Company currently (t = 0) pays a dividend of $2.50 per share on its common stock. Dividends are expected to increase at the rate of $.25 per share for the next several years. Determine the current value of CPU's common stock to an investor who expects to be able to sell the stock for $35 per share after 3 years, given that the investor requires a 14 percent rate of return on this security.

Accepted Answer

A)  $24 
B)  $30.54 
C)  $19.64 
D)  $68.75 
A)  $24 
B)  $30.54 
C)  $19.64 
D)  $68.75

Question 12

If Night Owl Lamps pays an annual dividend of $1.54, has a PE of 13, and its last closing price was 40, then its dividend yield must be:

Accepted Answer

A)  11.85% 
B)  3.85% 
C)  15.40% 
D)  3.25% 
A)  11.85% 
B)  3.85% 
C)  15.40% 
D)  3.25%

Question 13

Helix common stock currently sells for $30 and its current dividend is $1.50. If the required rate of return on Helix stock is 15%, what is the implied growth rate of its earnings and dividends?

Accepted Answer

A)  13.5% 
B)  9.5% 
C)  10.0% 
D)  30.0% 
A)  13.5% 
B)  9.5% 
C)  10.0% 
D)  30.0%

Question 14

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 15

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.

Question 16

The P/E ratio indicates

Accepted Answer

A)  how much investors are willing to pay for $1 of current earnings 
B)  the current yield 
C)  the current price 
D)  how risky the stock is 
A)  how much investors are willing to pay for $1 of current earnings 
B)  the current yield 
C)  the current price 
D)  how risky the stock is

Question 17

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 18

A firm may sell its common stock directly to its existing stockholders through a

Accepted Answer

A)  private placement 
B)  cash offering 
C)  rights offering 
D)  direct placement 
A)  private placement 
B)  cash offering 
C)  rights offering 
D)  direct placement

Question 19

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 20

In a reverse stock split

Accepted Answer

A)  the number of shares are decreased 
B)  the market value is decreased 
C)  retained earnings decrease 
D)  par value decreases 
A)  the number of shares are decreased 
B)  the market value is decreased 
C)  retained earnings decrease 
D)  par value decreases

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

All of the following are ways that securities are offered to the public in a public offering EXCEPT:

The constant growth dividend valuation model does not hold when

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?

An option for selling securities reserved for larger firms ( MVE > $150,000,000) whereby the firm files a master registration statement and then can small increments of the stock over the next two years by filing a short form statement is called:

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.

One of the assumptions of the constant growth dividend valuation model is that

List the various rights of common stockholders.

In the constant-growth dividend valuation model, the required rate of return must be ____ the dividend growth rate in order for the formula price to be meaningful.

The difference between the selling price to the public of a new issue and the net the issuing firm actually receives is known as the

If Night Owl Lamps pays an annual dividend of $1.54, has a PE of 13, and its last closing price was 40, then its dividend yield must be:

Helix common stock currently sells for $30 and its current dividend is $1.50. If the required rate of return on Helix stock is 15%, what is the implied growth rate of its earnings and dividends?

A common stock's book value is calculated

The P/E ratio indicates

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

A firm may sell its common stock directly to its existing stockholders through a

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?

In a reverse stock split

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

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