Question 1

Which of the following changes will make the value of a stock go up,other things being held constant?

Accepted Answer

A) The required return decreases. 
B) The required return increases. 
C) In general,investors become more risk averse. 
D) The growth rate of dividends decreases. 
A) The required return decreases. 
B) The required return increases. 
C) In general,investors become more risk averse. 
D) The growth rate of dividends decreases.

Question 2

South Stage,Inc.preferred stock pays an annual dividend of $2.75 per share.If the stock is currently selling for $27.50 per share,what is the expected rate of return on this stock?

Accepted Answer

A) 2.75% 
B) 10.0% 
C) 17.5% 
D) 27.5% 
A) 2.75% 
B) 10.0% 
C) 17.5% 
D) 27.5%

Question 3

How is preferred stock similar to common stock?

Accepted Answer

A) Preferred dividend payments usually have unlimited growth potential. 
B) Investors cannot sue a corporation for the non-payment of dividends. 
C) Both preferred and common stockholders have voting control of a firm. 
D) Preferred stock dividends and common stock dividends are fixed. 
A) Preferred dividend payments usually have unlimited growth potential. 
B) Investors cannot sue a corporation for the non-payment of dividends. 
C) Both preferred and common stockholders have voting control of a firm. 
D) Preferred stock dividends and common stock dividends are fixed.

Question 4

TC Corp paid a dividend today of $5 per share.The dividend is expected to grow at a constant rate of 6.5% per year.If TC Corp stock is selling for $50.00 per share,the stockholders' expected rate of return is

Accepted Answer

A) 11.50%. 
B) 13.56%. 
C) 15.49%. 
D) 16.50%. 
A) 11.50%. 
B) 13.56%. 
C) 15.49%. 
D) 16.50%.

Question 5

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following,where D1 is the next dividend and Vc is the current value of the stock?

Accepted Answer

A) (D1 + g)/Vc 
B) D1/Vc + g 
C) D1/g 
D) D1/g + Vc 
A) (D1 + g)/Vc 
B) D1/Vc + g 
C) D1/g 
D) D1/g + Vc

Question 6

Historically,price appreciation,or capital gains yield,has accounted for a greater portion of returns on common stocks than dividend payments.

Accepted Answer

A) True 
 B)False

Question 7

Common stock cannot be worth less than its book value.

Accepted Answer

A) True 
 B)False

Question 8

Glacier Inc.preferred stock has a 5% stated dividend percentage,and a $100 par value.What is the value of the stock if your required rate of return is 6% per year?

Accepted Answer

A) $83.33 
B) $94.05 
C) $100.00 
D) $30.00 
A) $83.33 
B) $94.05 
C) $100.00 
D) $30.00

Question 9

Shasta Co.just paid a dividend of $1.65 (D0)on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value per share of Shasta stock.

Accepted Answer

A) $20.63 
B) $21.24 
C) $15.00 
D) $55.00 
A) $20.63 
B) $21.24 
C) $15.00 
D) $55.00

Question 10

A small biotechnology research corporation has been experiencing losses for the first three years of its existence,and thus has a negative balance in retained earnings.The corporation's stock price,however,is $1 per share.Which of the following statements is MOST correct?

Accepted Answer

A) Investors are irrational to pay $1 per share when earnings per share have been negative for three years. 
B) Investors believe the stock is worth $1 per share because future earnings (and cash flows)are expected to be positive. 
C) The corporation's accountants must have made a mistake because retained earnings may not be negative. 
D) The required return on the stock will be small because the company has very few assets. 
A) Investors are irrational to pay $1 per share when earnings per share have been negative for three years. 
B) Investors believe the stock is worth $1 per share because future earnings (and cash flows)are expected to be positive. 
C) The corporation's accountants must have made a mistake because retained earnings may not be negative. 
D) The required return on the stock will be small because the company has very few assets.

Question 11

Beaver Corporation stock is currently selling for $58.00.It is expected to pay a dividend of $5.00 at the end of the year.Dividends are expected to grow at a constant rate of 7.5% indefinitely.Compute the required rate of return on Beaver Corporation stock.

Accepted Answer

A) 12.48% 
B) 15.65% 
C) 13.64% 
D) 16.12% 
A) 12.48% 
B) 15.65% 
C) 13.64% 
D) 16.12%

Question 12

Which of the following features,or benefits,belong to a firm's common stockholders?

Accepted Answer

A) limited liability 
B) ownership of the firm 
C) voting rights 
D) all of the above 
A) limited liability 
B) ownership of the firm 
C) voting rights 
D) all of the above

Question 13

Because most preferred stocks are perpetuities,their value can be determined by dividing the annual dividend by an investor's required return.

Accepted Answer

A) True 
 B)False

Question 14

Backford Company just paid a dividend yesterday of $2.25 per share.The company's stock is currently selling for $60 per share,and the required rate of return on Backford Company stock is 16%.What is the growth rate expected for Backford Company dividends assuming constant growth?

Accepted Answer

A) 9.47% 
B) 9.89% 
C) 10.87% 
D) 11.81% 
A) 9.47% 
B) 9.89% 
C) 10.87% 
D) 11.81%

Question 15

A preferred stock that pays an annual dividend of $10,has a par value of $100,and has a required return of 5% will be valued at $200.

Accepted Answer

A) True 
 B)False

Question 16

A company's market capitalization is generally greater than its book value,in part due to its reputation for being able to deliver growth,attract top talent,and avoid ethical mistakes.

Accepted Answer

A) True 
 B)False

Question 17

Assume that a firm had such serious financial problems that it was about to be liquidated after a bankruptcy.All of the firm's assets are about to be sold in order to pay the following claims against the firm: bondholders,preferred stockholders,common stockholders,and federal income taxes.Of the claims mentioned,what priority would common stockholders have?

Accepted Answer

A) first 
B) second 
C) third 
D) fourth 
A) first 
B) second 
C) third 
D) fourth

Question 18

Who bears the greatest risk of loss of value if a firm should fail?

Accepted Answer

A) bondholders 
B) preferred stockholders 
C) common stockholders 
D) All of the above bear equal risk of loss. 
A) bondholders 
B) preferred stockholders 
C) common stockholders 
D) All of the above bear equal risk of loss.

Question 19

If a common stockholder cannot personally attend the meeting of shareholders then their votes are lost.

Accepted Answer

A) True 
 B)False

Question 20

Convertibility is a common feature of common stock; it allows the common stockholders to convert their common shares into preferred shares or into bonds.

Accepted Answer

A) True 
 B)False

Which of the following changes will make the value of a stock go up,other things being held constant?

South Stage,Inc.preferred stock pays an annual dividend of $2.75 per share.If the stock is currently selling for $27.50 per share,what is the expected rate of return on this stock?

How is preferred stock similar to common stock?

TC Corp paid a dividend today of $5 per share.The dividend is expected to grow at a constant rate of 6.5% per year.If TC Corp stock is selling for $50.00 per share,the stockholders' expected rate of return is

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following,where D₁ is the next dividend and Vc is the current value of the stock?

Historically,price appreciation,or capital gains yield,has accounted for a greater portion of returns on common stocks than dividend payments.

Common stock cannot be worth less than its book value.

Glacier Inc.preferred stock has a 5% stated dividend percentage,and a $100 par value.What is the value of the stock if your required rate of return is 6% per year?

Shasta Co.just paid a dividend of $1.65 (D₀)on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value per share of Shasta stock.

A small biotechnology research corporation has been experiencing losses for the first three years of its existence,and thus has a negative balance in retained earnings.The corporation's stock price,however,is $1 per share.Which of the following statements is MOST correct?

Beaver Corporation stock is currently selling for $58.00.It is expected to pay a dividend of $5.00 at the end of the year.Dividends are expected to grow at a constant rate of 7.5% indefinitely.Compute the required rate of return on Beaver Corporation stock.

Which of the following features,or benefits,belong to a firm's common stockholders?

Because most preferred stocks are perpetuities,their value can be determined by dividing the annual dividend by an investor's required return.

Backford Company just paid a dividend yesterday of $2.25 per share.The company's stock is currently selling for $60 per share,and the required rate of return on Backford Company stock is 16%.What is the growth rate expected for Backford Company dividends assuming constant growth?

A preferred stock that pays an annual dividend of $10,has a par value of $100,and has a required return of 5% will be valued at $200.

A company's market capitalization is generally greater than its book value,in part due to its reputation for being able to deliver growth,attract top talent,and avoid ethical mistakes.

Who bears the greatest risk of loss of value if a firm should fail?

If a common stockholder cannot personally attend the meeting of shareholders then their votes are lost.

Convertibility is a common feature of common stock; it allows the common stockholders to convert their common shares into preferred shares or into bonds.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 8: The Valuation and Characteristics of Stock

Which of the following changes will make the value of a stock go up,other things being held constant?

South Stage,Inc.preferred stock pays an annual dividend of $2.75 per share.If the stock is currently selling for $27.50 per share,what is the expected rate of return on this stock?

How is preferred stock similar to common stock?

TC Corp paid a dividend today of $5 per share.The dividend is expected to grow at a constant rate of 6.5% per year.If TC Corp stock is selling for $50.00 per share,the stockholders' expected rate of return is

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following,where D1 is the next dividend and Vc is the current value of the stock?

Historically,price appreciation,or capital gains yield,has accounted for a greater portion of returns on common stocks than dividend payments.

Common stock cannot be worth less than its book value.

Glacier Inc.preferred stock has a 5% stated dividend percentage,and a $100 par value.What is the value of the stock if your required rate of return is 6% per year?

Shasta Co.just paid a dividend of $1.65 (D0)on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value per share of Shasta stock.

A small biotechnology research corporation has been experiencing losses for the first three years of its existence,and thus has a negative balance in retained earnings.The corporation's stock price,however,is $1 per share.Which of the following statements is MOST correct?

Beaver Corporation stock is currently selling for $58.00.It is expected to pay a dividend of $5.00 at the end of the year.Dividends are expected to grow at a constant rate of 7.5% indefinitely.Compute the required rate of return on Beaver Corporation stock.

Which of the following features,or benefits,belong to a firm's common stockholders?

Because most preferred stocks are perpetuities,their value can be determined by dividing the annual dividend by an investor's required return.

Backford Company just paid a dividend yesterday of $2.25 per share.The company's stock is currently selling for $60 per share,and the required rate of return on Backford Company stock is 16%.What is the growth rate expected for Backford Company dividends assuming constant growth?

A preferred stock that pays an annual dividend of $10,has a par value of $100,and has a required return of 5% will be valued at $200.

A company's market capitalization is generally greater than its book value,in part due to its reputation for being able to deliver growth,attract top talent,and avoid ethical mistakes.

Who bears the greatest risk of loss of value if a firm should fail?

If a common stockholder cannot personally attend the meeting of shareholders then their votes are lost.

Convertibility is a common feature of common stock; it allows the common stockholders to convert their common shares into preferred shares or into bonds.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following,where D₁ is the next dividend and Vc is the current value of the stock?

Shasta Co.just paid a dividend of $1.65 (D₀)on its common stock.This company's dividends are expected to grow at a constant rate of 3% indefinitely.If the required rate of return on this stock is 11%,compute the current value per share of Shasta stock.