Exam 7: Stock Valuation

Which of the following is true of the issuance of nonvoting common stock?

Which of the following is true of outstanding shares?

The free cash flow valuation model is based on the same principle as the P/E valuation approach; that is, the value of a share of stock is the present value of future cash flows.

Dilution of ownership occurs when a new stock issue results in each present stockholder having a larger number of shares and, thus, a claim to a larger part of the firm's earnings than previously.

The book value per share of common stock is the amount per share of common stock that would be received if all of a firm's assets were sold for their accounting value and the proceeds remaining were divided among common stockholders.

________ is the actual amount each common stockholder would expect to receive if a firm's assets are sold for their market value, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.

Supervoting shares of common stock provide shareholders with ten times the voting power of ordinary shares of common stock.

Which of the following is a disadvantage of issuing preferred stock from the common stockholders' perspective?

The market value of common stock is completely unrelated to its par value.

Ria's Doll Company has an outstanding preferred issue of stock with a par value of $100 and an annual dividend of 10 percent (of par). Similar risk preferred stocks are yielding an 11.5 percent annual rate of return. (a) What is the current value of the outstanding preferred stock? (b) What will happen to price as the risk-free rate increases? Explain.

Equity capital can be raised through ________.

Karina's Caribbean Foods had total assets as recorded on its balance sheet are $1,500,000. What is the value of the Karina's common stock if it has $950,000 in liabilities, and 7,500 shares of common stock outstanding?

American Depositary Receipts (ADRs) are claims issued by U.S. banks representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors.

A firm has the balance sheet accounts, Common Stock and Paid-in Capital in Excess of Par, with values of $10,000 and $250,000, respectively. The firm has 10,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold for ________.

A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40 per share. The amount recorded for the paid-in capital in excess of par account is ________.

In the case of liquidation, common stockholders are paid first, followed by preferred stockholders, followed by bondholders.

Firms occasionally repurchase stock in order to alter capital structure or to increase the returns to the owners.

A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders at the end of third year?

Due to growing demand for computer software, the Shine Company has had a very successful year and expects its earnings per share to grow by 25 percent to reach $5.50 for this year. Estimate the price of the company's common stock assuming the industry's price/earning ratio is 12.

If a firm has class A and class B common stock outstanding, it means that ________.