Exam 8: The Valuation and Characteristics of Stock

Common stock valuation can be based on the present value of future dividends or alternatively on the present value of the firm's future quarterly net income.

Keyes Corporation preferred stock pays an annual dividend of $7 per share.Which of the following statements is true for an investor with a required return of 9%?

CMT,Inc.has an issue of preferred stock whose par value is $500.The preferred stock pays a 4.5% dividend.If investors require a 5.5% rate of return for these shares,what price should the preferred stock sell for?

Under majority voting a majority (>50%)shareholder will just be able to elect a simple majority of the board of directors.

Johnstown Supply 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 Johnstown Supply Corporation stock.

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?

Common stock cannot be worth less than its book value.

Under cumulative voting a 10% shareholder will likely be able to elect 10% of the board of directors.

U.S Technologies preferred stock sells for $80 and pays $9 each year in dividends.What is the expected rate of return?

Emery 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 Emery Company stock is 16%.What is the growth rate expected for Emery Company dividends assuming constant growth?

You observe Golden Flashes Common Stock selling for $40.00 per share.The next dividend is expected to be $4.00,and is expected to grow at a 5% annual rate forever.If your required rate of return is 12%,should you purchase the stock?

Cumulative preferred stock

Although under normal operating conditions preferred shareholders do not have voting rights,protective provision generally allow for voting rights in the event of nonpayment of preferred dividends.

Miller's preferred stock is selling at $54 on the market and pays an annual dividend of $4.20 per share. a.What is the expected rate of return on the stock? b.If an investor's required rate of return is 9%,what is the value of the stock to that investor? c.Considering the investor's required rate of return,does this stock seem to be a desirable investment?

Most preferred stocks have a feature that requires all past unpaid preferred dividend payments be paid before any common stock dividends can be paid.What is the name of this feature?

How is preferred stock affected by a decrease in the required rate of return?

How is preferred stock similar to common stock?

Berberich Corporation net income this year is $800,000.The company generally retains 35% of net income for reinvestment.The company's common equity currently has a book value of $5,000,000.They just paid a dividend of $1.37,and the required rate of return on this stock is 12%.Compute the value of this stock if dividends are expected to continue growing indefinitely at the company's internal growth rate.

J&S Corporation has preferred stock which paid an annual dividend in 2009 of $5 per share.J&S also has common stock which paid a dividend in 2009 of $5.Which of the following statements is most correct concerning J&S stock?

An example of the growth factor in common stock is: