Exam 7: Stock Valuation

Which of the following is an advantage for a firm to issue common stock over long-term debt?

If the expected return were above the required return, investors would buy an asset, driving its price up and its expected return down.

A firm has an issue of preferred stock outstanding that has a stated annual dividend of $4. The required return on the preferred stock has been estimated to be 16 percent. The value of the preferred stock is ________.

In a ________, new shares are sold to the existing shareholders.

Julie's X-Ray Company paid $2.00 per share in common stock dividends last year. The company's policy is to allow its dividend to grow at 5 percent for 4 years and then the rate of growth changes to 3 percent per year from year five and on. What is the value of the stock if the required rate of return is 8 percent?

A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on the firm's income and assets have been satisfied.

A prospectus is a portion of the security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position.

Preferred stock is characterized by ________.

Any action taken by a financial manager that increases risk will also increase the required return.

Although preferred stock provides added financial leverage in much the same way as bonds, it differs from bonds in that the issuer can pass a dividend payment without suffering the consequences that result when an interest payment is missed on a bond.

Which of the following is usually a right of a preferred stockholder?

In valuation of common stock, the price/earnings multiple approach is considered superior to the use of book or liquidation values since it considers expected earnings.

A violation of preferred stock restrictive covenants usually permits preferred shareholders to ________.

Angel capitalists or angels are wealthy individual investors who do not operate as a business but invest in early-stage companies in exchange for a portion of equity.

Dividends paid to stockholders is tax deductible.

Which of the following typically applies to common stock but not to preferred stock?

Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are ________.

Which of the following is true of efficient-market hypothesis?

Small business investment companies (SBICs) are corporations chartered by the federal government that can borrow at attractive rates from the U.S. Treasury and use the funds to make venture capital investments in private companies.

Holders of equity have claims on both income and assets that are secondary to the claims of creditors.