Question 1

Common stockholders have the right to _____.

Accepted Answer

A) vote for the changes in a firm's charter 
B) convert their stock into bonds 
C) receive the cash distributions before preferred stockholders 
D) receive the par value of shares on liquidation 
E) receive cumulative dividends 
A) vote for the changes in a firm's charter 
B) convert their stock into bonds 
C) receive the cash distributions before preferred stockholders 
D) receive the par value of shares on liquidation 
E) receive cumulative dividends

Question 2

Which of the following securities has the highest priority with regard to the distribution of both earnings and proceeds from the liquidation of assets of a firm?

Accepted Answer

A) Corporate bonds 
B) Preferred stock 
C) Common stock 
D) American depository receipts (ADRs) 
E) Foreign stocks 
A) Corporate bonds 
B) Preferred stock 
C) Common stock 
D) American depository receipts (ADRs) 
E) Foreign stocks

Question 3

A firm has 1,000 shares of common stock outstanding with a par value of $15 per share. Upon liquidation, the firm has insufficient funds and requires an additional $5,000 to repay its creditors. Which of the following statements is true about the common shareholders' financial obligation?

Accepted Answer

A) If the share is purchased for $8, the stockholders are obligated to pay $2 per share to the creditors. 
B) If the share is purchased for $20, the stockholders are obligated to pay interest equal to $15 per share to the firm. 
C) If the share is purchased for $15, the stockholders are obligated to pay $15 per share to the bondholders. 
D) If the share is purchased for $18, the stockholders are obligated to pay a dividend of $3 per share to the firm. 
E) If the share is purchased for $10, the stockholders are obligated to contribute $5 per share to the firm. 
A) If the share is purchased for $8, the stockholders are obligated to pay $2 per share to the creditors. 
B) If the share is purchased for $20, the stockholders are obligated to pay interest equal to $15 per share to the firm. 
C) If the share is purchased for $15, the stockholders are obligated to pay $15 per share to the bondholders. 
D) If the share is purchased for $18, the stockholders are obligated to pay a dividend of $3 per share to the firm. 
E) If the share is purchased for $10, the stockholders are obligated to contribute $5 per share to the firm.

Question 4

Scubapro Corporation currently has 500,000 shares of common stock outstanding and plans to issue 200,000 more shares in a seasoned equity offering. The current shareholders have preemptive rights on any new issues of common stock by Scubapro Corporation. How many shares would an investor who currently has 20,000 shares, have the right to buy if she exercises her preemptive right?

Accepted Answer

A) 200,000 shares 
B) 120,000 shares 
C) 20,000 shares 
D) 12,000 shares 
E) 8,000 shares 
A) 200,000 shares 
B) 120,000 shares 
C) 20,000 shares 
D) 12,000 shares 
E) 8,000 shares

Question 5

Which of the following is considered as a Euro stock?

Accepted Answer

A) A German company selling stock in the United States 
B) A Japanese company selling stock in Japan 
C) A U.S. company selling stock in U.S. 
D) A German company selling stock in Japan 
E) A Japanese company selling stock in the United States 
A) A German company selling stock in the United States 
B) A Japanese company selling stock in Japan 
C) A U.S. company selling stock in U.S. 
D) A German company selling stock in Japan 
E) A Japanese company selling stock in the United States

Question 6

A typical common stock issue has a maturity period of 10 years.

Accepted Answer

A) True 
 B)False

Question 7

A firm most likely will repurchase shares of its common stock in the financial markets when _______.

Accepted Answer

A) the price of the firm's stock is overvalued 
B) management wants to increase the ownership control of the outside investors 
C) the firm has a large amount of cash and a number of good investment opportunities that will grow the firm 
D) common stockholders are the last to receive proceeds from liquidation 
E) the returns on the firm's stock is generated by solely by capital gains 
A) the price of the firm's stock is overvalued 
B) management wants to increase the ownership control of the outside investors 
C) the firm has a large amount of cash and a number of good investment opportunities that will grow the firm 
D) common stockholders are the last to receive proceeds from liquidation 
E) the returns on the firm's stock is generated by solely by capital gains

Question 8

When using the dividend discount model, assuming that growth (g) will remain constant, under which of the following circumstances will the dividend yield be equal to the required return on a common stock (rs)?

Accepted Answer

A) g = 0 
B) g > 0 
C) g  rs 
A) g = 0 
B) g > 0 
C) g  rs

Question 9

A share of preferred stock pays an annual dividend of $6 per share. If investors require a 12 percent rate of return, what should be the price of this preferred stock?

Accepted Answer

A) $55.00 
B) $50.00 
C) $60.00 
D) $45.00 
E) $40.00 
A) $55.00 
B) $50.00 
C) $60.00 
D) $45.00 
E) $40.00

Question 10

Considering the economic value added (EVA) of a firm, which of the following should increase the firm's value?

Accepted Answer

A) EVA = 0 
B) EVA > 0 
C) EVA Earnings per share (EPS) 
E) Price-earnings ratio (P/
E)  ratio > EVA 
A) EVA = 0 
B) EVA > 0 
C) EVA Earnings per share (EPS) 
E) Price-earnings ratio (P/
E)  ratio > EVA

Question 11

A share of a preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is the simple (not effective) annual rate of return?

Accepted Answer

A) 8% 
B) 6% 
C) 12% 
D) 14% 
E) 10% 
A) 8% 
B) 6% 
C) 12% 
D) 14% 
E) 10%

Question 12

A call provision included with a sinking fund effectively adds a maturity option to a preferred stock issue.

Accepted Answer

A) True 
 B)False

Question 13

_____ is determined by subtracting the costs associated with both the debt and the equity that the firm uses from its after-tax operating income?

Accepted Answer

A) A firm's price earnings ratio (P/
E)  
B) A firm's expected capital gains yield 
C) A firm's intrinsic value of stock 
D) A firm's nonconstant growth of stock 
E) A firm's economic value added (EV
A)  
A) A firm's price earnings ratio (P/
E)  
B) A firm's expected capital gains yield 
C) A firm's intrinsic value of stock 
D) A firm's nonconstant growth of stock 
E) A firm's economic value added (EV
A)

Question 14

The amount in excess of par value that a company must pay when it repurchases a security is known as the _____.

Accepted Answer

A) call premium 
B) preemptive price 
C) cumulative dividend 
D) participating dividend 
E) growth stock 
A) call premium 
B) preemptive price 
C) cumulative dividend 
D) participating dividend 
E) growth stock

Question 15

Which of the following securities is eligible for a cumulative dividend?

Accepted Answer

A) Debenture bonds 
B) Preferred stock 
C) Classified stock 
D) Common stock 
E) Founders' stock 
A) Debenture bonds 
B) Preferred stock 
C) Classified stock 
D) Common stock 
E) Founders' stock

Question 16

Which of the following is true of American depository receipts?

Accepted Answer

A) With the exception of stocks traded in the United States, stocks that are traded in a country other than the issuing company's home country are called American depository receipts. 
B) American depository receipts are pools of stocks of different American companies issued by foreign companies that are traded in international stock markets. 
C) An American depository receipt is the stock of an American company that is traded in foreign countries. 
D) If a Japanese company sells its stocks in the United States, the transaction is termed an American depository receipt. 
E) American depository receipts provide U.S. investors with the ability to invest in foreign companies with less complexity and difficulty than might otherwise be possible. 
A) With the exception of stocks traded in the United States, stocks that are traded in a country other than the issuing company's home country are called American depository receipts. 
B) American depository receipts are pools of stocks of different American companies issued by foreign companies that are traded in international stock markets. 
C) An American depository receipt is the stock of an American company that is traded in foreign countries. 
D) If a Japanese company sells its stocks in the United States, the transaction is termed an American depository receipt. 
E) American depository receipts provide U.S. investors with the ability to invest in foreign companies with less complexity and difficulty than might otherwise be possible.

Question 17

Assume that a firm distributes all of its earnings as dividends. Which of the following is indicated by a price-earnings (P/E) ratio of 10?

Accepted Answer

A) It would take 10 years for an investor to recover his or her initial investment. 
B) The firm will pay a dividend of $10 per share. 
C) The value of the stock will be 10 times the initial investment at the time of maturity. 
D) The stock's value will increase by 10 percent every year. 
E) An investor would receive 10 percent of the total earnings of the firm at the time of liquidation. 
A) It would take 10 years for an investor to recover his or her initial investment. 
B) The firm will pay a dividend of $10 per share. 
C) The value of the stock will be 10 times the initial investment at the time of maturity. 
D) The stock's value will increase by 10 percent every year. 
E) An investor would receive 10 percent of the total earnings of the firm at the time of liquidation.

Question 18

The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?

Accepted Answer

A) $38.00 
B) $40.00 
C) $45.00 
D) $44.00 
E) $50.00 
A) $38.00 
B) $40.00 
C) $45.00 
D) $44.00 
E) $50.00

Question 19

Which of the following is true about the payment of dividends by a firm?

Accepted Answer

A) Dividends are paid only to the bondholders of the firm. 
B) Common stockholders have priority over preferred stockholders with regard to dividend payments. 
C) Preferred stocks pay accumulated dividends only once i.e. at the time of maturity. 
D) Growth stocks pay little or no dividends; rather, the firms retain most of their earnings each year to reinvest in assets. 
E) Common stockholders generally receive a fixed amount of dividend every year. 
A) Dividends are paid only to the bondholders of the firm. 
B) Common stockholders have priority over preferred stockholders with regard to dividend payments. 
C) Preferred stocks pay accumulated dividends only once i.e. at the time of maturity. 
D) Growth stocks pay little or no dividends; rather, the firms retain most of their earnings each year to reinvest in assets. 
E) Common stockholders generally receive a fixed amount of dividend every year.

Question 20

A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend (D0) on this stock?

Accepted Answer

A) $2.00 
B) $3.00 
C) $4.00 
D) $3.30 
E) $6.00 
A) $2.00 
B) $3.00 
C) $4.00 
D) $3.30 
E) $6.00

Common stockholders have the right to _____.

Which of the following securities has the highest priority with regard to the distribution of both earnings and proceeds from the liquidation of assets of a firm?

A firm has 1,000 shares of common stock outstanding with a par value of $15 per share. Upon liquidation, the firm has insufficient funds and requires an additional $5,000 to repay its creditors. Which of the following statements is true about the common shareholders' financial obligation?

Which of the following is considered as a Euro stock?

A typical common stock issue has a maturity period of 10 years.

A firm most likely will repurchase shares of its common stock in the financial markets when _______.

When using the dividend discount model, assuming that growth (g) will remain constant, under which of the following circumstances will the dividend yield be equal to the required return on a common stock (rs)?

A share of preferred stock pays an annual dividend of $6 per share. If investors require a 12 percent rate of return, what should be the price of this preferred stock?

Considering the economic value added (EVA) of a firm, which of the following should increase the firm's value?

A share of a preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is the simple (not effective) annual rate of return?

A call provision included with a sinking fund effectively adds a maturity option to a preferred stock issue.

_____ is determined by subtracting the costs associated with both the debt and the equity that the firm uses from its after-tax operating income?

The amount in excess of par value that a company must pay when it repurchases a security is known as the _____.

Which of the following securities is eligible for a cumulative dividend?

Which of the following is true of American depository receipts?

Assume that a firm distributes all of its earnings as dividends. Which of the following is indicated by a price-earnings (P/E) ratio of 10?

The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?

Which of the following is true about the payment of dividends by a firm?

A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend (D0) on this stock?

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 7: Stocks Equity Characteristics and Valuation

Common stockholders have the right to _____.

Which of the following securities has the highest priority with regard to the distribution of both earnings and proceeds from the liquidation of assets of a firm?

A firm has 1,000 shares of common stock outstanding with a par value of $15 per share. Upon liquidation, the firm has insufficient funds and requires an additional $5,000 to repay its creditors. Which of the following statements is true about the common shareholders' financial obligation?

Which of the following is considered as a Euro stock?

A typical common stock issue has a maturity period of 10 years.

A firm most likely will repurchase shares of its common stock in the financial markets when _______.

When using the dividend discount model, assuming that growth (g) will remain constant, under which of the following circumstances will the dividend yield be equal to the required return on a common stock (rs)?

A share of preferred stock pays an annual dividend of $6 per share. If investors require a 12 percent rate of return, what should be the price of this preferred stock?

Considering the economic value added (EVA) of a firm, which of the following should increase the firm's value?

A share of a preferred stock pays a dividend of $0.50 each quarter. If you are willing to pay $20.00 for this preferred stock, what is the simple (not effective) annual rate of return?

A call provision included with a sinking fund effectively adds a maturity option to a preferred stock issue.

_____ is determined by subtracting the costs associated with both the debt and the equity that the firm uses from its after-tax operating income?

The amount in excess of par value that a company must pay when it repurchases a security is known as the _____.

Which of the following securities is eligible for a cumulative dividend?

Which of the following is true of American depository receipts?

Assume that a firm distributes all of its earnings as dividends. Which of the following is indicated by a price-earnings (P/E) ratio of 10?

The last dividend on Spirex Corporation's common stock was $4.00, and the expected growth rate is 10 percent. If you require a rate of return of 20 percent, what is the highest price you should be willing to pay for this stock?

Which of the following is true about the payment of dividends by a firm?

A share of common stock has a current price of $82.50 and is expected to grow at a constant rate of 10 percent. If you require a 14 percent rate of return, what is the current dividend (D0) on this stock?

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters