Question 1

Treasury stocks held within the corporation do not have voting rights but have a claim on assets in liquidation.

Accepted Answer

A) True 
 B)False

Question 2

Stock rights provide the stockholder with ________.

Accepted Answer

A)  the right to purchase additional shares in direct proportion to their number of owned shares 
B)  the right to elect the board of directors 
C)  cumulative voting privileges over the preference stockholders 
D)  the opportunity to receive extraordinary earnings 
A)  the right to purchase additional shares in direct proportion to their number of owned shares 
B)  the right to elect the board of directors 
C)  cumulative voting privileges over the preference stockholders 
D)  the opportunity to receive extraordinary earnings

Question 3

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market premium is 4 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be ________.

Accepted Answer

A)  overvalued because the market price is higher than the resulting share value 
B)  undervalued because the market price is less than the resulting share value 
C)  overvalued because the resulting share value is higher than the market value 
D)  undervalued because the resulting share value is less than the market value 
A)  overvalued because the market price is higher than the resulting share value 
B)  undervalued because the market price is less than the resulting share value 
C)  overvalued because the resulting share value is higher than the market value 
D)  undervalued because the resulting share value is less than the market value

Question 4

To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

Accepted Answer

A) True 
 B)False

Question 5

Corporate venture capital funds are subsidiaries of financial institutions, particularly banks, set up to help young firms grow and, it is hoped, become major customers of the institutions.

Accepted Answer

A) True 
 B)False

Question 6

Treasury stock refers to the ________.

Accepted Answer

A)  sale of stock at a price greater than the par value 
B)  stock issued by the US government 
C)  repurchase of outstanding stock 
D)  authorization of additional shares of stock by the board of directors 
A)  sale of stock at a price greater than the par value 
B)  stock issued by the US government 
C)  repurchase of outstanding stock 
D)  authorization of additional shares of stock by the board of directors

Question 7

The cost of preferred stock is ________.

Accepted Answer

A)  lower than the cost of long-term debt. 
B)  higher than the cost of common stock. 
C)  higher than the cost of long-term debt and lower than the cost of common stock. 
D)  lower than the cost of convertible long-term debt and higher than the cost of common stock. 
A)  lower than the cost of long-term debt. 
B)  higher than the cost of common stock. 
C)  higher than the cost of long-term debt and lower than the cost of common stock. 
D)  lower than the cost of convertible long-term debt and higher than the cost of common stock.

Question 8

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

Accepted Answer

A) True 
 B)False

Question 9

Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.

Accepted Answer

A)  fixed dividend payments 
B)  greater returns from their investment in the firm's stock 
C)  all profits to be paid out in dividends 
D)  warrants to be attached to the stock issue 
A)  fixed dividend payments 
B)  greater returns from their investment in the firm's stock 
C)  all profits to be paid out in dividends 
D)  warrants to be attached to the stock issue

Question 10

At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Based on this information, Tangshan's book value per share of common stock is ________.

Accepted Answer

A)  $105 
B)  $10.50 
C)  $15 
D)  $150 
A)  $105 
B)  $10.50 
C)  $15 
D)  $150

Question 11

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

Accepted Answer

A)  Preferred stockholders 
B)  Common stockholders 
C)  Bondholders 
D)  Creditors 
A)  Preferred stockholders 
B)  Common stockholders 
C)  Bondholders 
D)  Creditors

Question 12

Which of the following is true of a common stock?

Accepted Answer

A)  It gives voting rights which permit determination of the amount of dividend receivable. 
B)  It gives claims on income and assets which are superior to the claims of creditors of the firm. 
C)  Dividends on common stock are fully tax-deductible. 
D)  There is no fixed dividend payment obligation for the company. 
A)  It gives voting rights which permit determination of the amount of dividend receivable. 
B)  It gives claims on income and assets which are superior to the claims of creditors of the firm. 
C)  Dividends on common stock are fully tax-deductible. 
D)  There is no fixed dividend payment obligation for the company.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Preferred stock has characteristics of debt since it provides a fixed periodic cash payment.

Accepted Answer

A) True 
 B)False

Question 15

The board of directors of Ride World, Inc. has declared $5.00 common stock dividend and accepted a plan to freeze the dividend at $5 per year indefinitely. What is the value of the Ride World's common stock if the required rate of interest is 15 percent?

Accepted Answer

P = D / r

Question 16

Unlike equityholders, creditors are owners of the firm.

Accepted Answer

A) True 
 B)False

Question 17

A proxy statement gives shareholders the right ________.

Accepted Answer

A)  of one vote for each share owned 
B)  to give up their vote to another party 
C)  to maintain their proportionate ownership in the corporation when new common stock is issued 
D)  to sell their share of stock at a premium 
A)  of one vote for each share owned 
B)  to give up their vote to another party 
C)  to maintain their proportionate ownership in the corporation when new common stock is issued 
D)  to sell their share of stock at a premium

Question 18

If bankruptcy were to occur, ________ would have the first claim on assets.

Accepted Answer

A)  preferred stockholders 
B)  unsecured creditors 
C)  equity stockholders 
D)  secured creditors 
A)  preferred stockholders 
B)  unsecured creditors 
C)  equity stockholders 
D)  secured creditors

Question 19

A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________.

Accepted Answer

A)  underwriting syndicate 
B)  selling group 
C)  investment banking consortium 
D)  broker pool 
A)  underwriting syndicate 
B)  selling group 
C)  investment banking consortium 
D)  broker pool

Question 20

Which of the following is typically a feature of preferred stocks?

Accepted Answer

A)  They are settled prior to common stocks during liquidation. 
B)  They are mostly noncumulative in nature. 
C)  They are paid dividends that grow at a constant rate. 
D)  They carry voting rights and have maturity date. 
A)  They are settled prior to common stocks during liquidation. 
B)  They are mostly noncumulative in nature. 
C)  They are paid dividends that grow at a constant rate. 
D)  They carry voting rights and have maturity date.

Treasury stocks held within the corporation do not have voting rights but have a claim on assets in liquidation.

Stock rights provide the stockholder with ________.

To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

Corporate venture capital funds are subsidiaries of financial institutions, particularly banks, set up to help young firms grow and, it is hoped, become major customers of the institutions.

Treasury stock refers to the ________.

The cost of preferred stock is ________.

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.

At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Based on this information, Tangshan's book value per share of common stock is ________.

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

Which of the following is true of a common stock?

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

Preferred stock has characteristics of debt since it provides a fixed periodic cash payment.

The board of directors of Ride World, Inc. has declared $5.00 common stock dividend and accepted a plan to freeze the dividend at $5 per year indefinitely. What is the value of the Ride World's common stock if the required rate of interest is 15 percent?

Unlike equityholders, creditors are owners of the firm.

A proxy statement gives shareholders the right ________.

If bankruptcy were to occur, ________ would have the first claim on assets.

A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________.

Which of the following is typically a feature of preferred stocks?

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

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Exam 7: Stock Valuation

Treasury stocks held within the corporation do not have voting rights but have a claim on assets in liquidation.

Stock rights provide the stockholder with ________.

To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

Corporate venture capital funds are subsidiaries of financial institutions, particularly banks, set up to help young firms grow and, it is hoped, become major customers of the institutions.

Treasury stock refers to the ________.

The cost of preferred stock is ________.

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.

At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Based on this information, Tangshan's book value per share of common stock is ________.

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

Which of the following is true of a common stock?

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

Preferred stock has characteristics of debt since it provides a fixed periodic cash payment.

The board of directors of Ride World, Inc. has declared $5.00 common stock dividend and accepted a plan to freeze the dividend at $5 per year indefinitely. What is the value of the Ride World's common stock if the required rate of interest is 15 percent?

Unlike equityholders, creditors are owners of the firm.

A proxy statement gives shareholders the right ________.

If bankruptcy were to occur, ________ would have the first claim on assets.

A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________.

Which of the following is typically a feature of preferred stocks?

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters