Question 1

The ________ is utilized to value preferred stock.

Accepted Answer

A)  capital asset pricing model 
B)  arbitrage pricing model 
C)  zero-growth model 
D)  Black-Scholes model 
A)  capital asset pricing model 
B)  arbitrage pricing model 
C)  zero-growth model 
D)  Black-Scholes model

Question 2

A proxy battle is the attempt by ________.

Accepted Answer

A)  the creditors of a bankrupt corporation to seize assets of the corporation 
B)  the management to dismiss the board of directors for their incapability to manage the operations 
C)  a nonmanagement group to unseat the existing management and gain control of the firm 
D)  the employees to form trade unions to influence decisions on behalf of members 
A)  the creditors of a bankrupt corporation to seize assets of the corporation 
B)  the management to dismiss the board of directors for their incapability to manage the operations 
C)  a nonmanagement group to unseat the existing management and gain control of the firm 
D)  the employees to form trade unions to influence decisions on behalf of members

Question 3

In the Gordon model, the value of a common stock is the ________.

Accepted Answer

A)  net value of all assets which are liquidated for their exact accounting value 
B)  actual amount each common stockholder would expect to receive if the firm's assets are sold 
C)  present value of a non-growing dividend stream 
D)  present value of a constant growing dividend stream 
A)  net value of all assets which are liquidated for their exact accounting value 
B)  actual amount each common stockholder would expect to receive if the firm's assets are sold 
C)  present value of a non-growing dividend stream 
D)  present value of a constant growing dividend stream

Question 4

The constant growth model is an approach to dividend valuation that assumes a constant future dividend.

Accepted Answer

A) True 
 B)False

Question 5

Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________.

Accepted Answer

A)  $28.00 
B)  $56.00 
C)  $22.40 
D)  $18.67 
A)  $28.00 
B)  $56.00 
C)  $22.40 
D)  $18.67

Question 6

Interest paid to bondholders is tax deductible.

Accepted Answer

A) True 
 B)False

Question 7

The number of authorized shares of common stock is always greater than or equal to the number of outstanding shares of common stock.

Accepted Answer

A) True 
 B)False

Question 8

The purpose of nonvoting common stock is to ________.

Accepted Answer

A)  limit the voting power of the management 
B)  allow the minority interest to elect one director 
C)  raise capital without giving up any voting control 
D)  give preference on distribution of earnings to those shareholders who own the stock 
A)  limit the voting power of the management 
B)  allow the minority interest to elect one director 
C)  raise capital without giving up any voting control 
D)  give preference on distribution of earnings to those shareholders who own the stock

Question 9

Venture capitalists invest in promising early-stage companies in exchange for a portion of the firm's equity.

Accepted Answer

A) True 
 B)False

Question 10

Investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

Accepted Answer

A) True 
 B)False

Question 11

No-par preferred stock has no stated face value, but its annual dividend is stated as a percentage of the market value.

Accepted Answer

A) True 
 B)False

Question 12

Table 7.1  
-Xiao Xin owns stock in a company which has paid the annual dividends shown in Table 7.1. Calculate the growth rate of these dividends.

Accepted Answer

Constant growth rate

Question 13

A preferred stockholder is sometimes referred to as a residual owner, since in essence he or she receives what is left-the residual-after all other claims on the firm's income and assets have been satisfied.

Accepted Answer

A) True 
 B)False

Question 14

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

Accepted Answer

A) True 
 B)False

Question 15

________ is a guide to a firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry.

Accepted Answer

A)  Liquidation value 
B)  Book value 
C)  The P/E multiple 
D)  The present value of the dividends 
A)  Liquidation value 
B)  Book value 
C)  The P/E multiple 
D)  The present value of the dividends

Question 16

A prospectus is another term for a firm's annual report showing the firm's prospects for the coming year.

Accepted Answer

A) True 
 B)False

Question 17

ADRs are ________.

Accepted Answer

A)  securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets 
B)  securities, backed by Securities Exchange Commission (SE
C) , that permit all investors to hold shares of U.S. companies and trade them in U.S. markets 
C)  securities, backed by American depositary shares (ADSs), that permit non-U.S. investors to hold shares of U.S. companies and trade them in U.S. markets 
D)  securities, backed by Securities Exchange Commission (SE
C) , that permit U.S. investors to hold shares of non-U.S. companies and trade them in international markets. 
A)  securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets 
B)  securities, backed by Securities Exchange Commission (SE
C) , that permit all investors to hold shares of U.S. companies and trade them in U.S. markets 
C)  securities, backed by American depositary shares (ADSs), that permit non-U.S. investors to hold shares of U.S. companies and trade them in U.S. markets 
D)  securities, backed by Securities Exchange Commission (SE
C) , that permit U.S. investors to hold shares of non-U.S. companies and trade them in international markets.

Question 18

Harry Corporation's common stock currently sells for $180 per share. Harry just paid a dividend of $10.18 and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Harry Corporation's stock sell for one year from now?

Accepted Answer

A)  $190.64 
B)  $187.04 
C)  $195.40 
D)  $179.84 
A)  $190.64 
B)  $187.04 
C)  $195.40 
D)  $179.84

Question 19

You are planning to purchase the stock of Ted's Sheds Inc. and you expect it to pay a dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the stock for $100 in 3 years. If your required return for purchasing the stock is 12 percent, how much would you pay for the stock today?

Accepted Answer

A)  $75.45 
B)  $77.24 
C)  $81.52 
D)  $85.66 
A)  $75.45 
B)  $77.24 
C)  $81.52 
D)  $85.66

Question 20

In an efficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

Accepted Answer

A) True 
 B)False

The ________ is utilized to value preferred stock.

A proxy battle is the attempt by ________.

In the Gordon model, the value of a common stock is the ________.

The constant growth model is an approach to dividend valuation that assumes a constant future dividend.

Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________.

Interest paid to bondholders is tax deductible.

The number of authorized shares of common stock is always greater than or equal to the number of outstanding shares of common stock.

The purpose of nonvoting common stock is to ________.

Venture capitalists invest in promising early-stage companies in exchange for a portion of the firm's equity.

Investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

No-par preferred stock has no stated face value, but its annual dividend is stated as a percentage of the market value.

Table 7.1 -Xiao Xin owns stock in a company which has paid the annual dividends shown in Table 7.1. Calculate the growth rate of these dividends.

A preferred stockholder is sometimes referred to as a residual owner, since in essence he or she receives what is left-the residual-after all other claims on the firm's income and assets have been satisfied.

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

________ is a guide to a firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry.

A prospectus is another term for a firm's annual report showing the firm's prospects for the coming year.

ADRs are ________.

Harry Corporation's common stock currently sells for $180 per share. Harry just paid a dividend of $10.18 and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Harry Corporation's stock sell for one year from now?

In an efficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

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

Exam 7: Stock Valuation

The ________ is utilized to value preferred stock.

A proxy battle is the attempt by ________.

In the Gordon model, the value of a common stock is the ________.

The constant growth model is an approach to dividend valuation that assumes a constant future dividend.

Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________.

Interest paid to bondholders is tax deductible.

The number of authorized shares of common stock is always greater than or equal to the number of outstanding shares of common stock.

The purpose of nonvoting common stock is to ________.

Venture capitalists invest in promising early-stage companies in exchange for a portion of the firm's equity.

Investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

No-par preferred stock has no stated face value, but its annual dividend is stated as a percentage of the market value.

Table 7.1 -Xiao Xin owns stock in a company which has paid the annual dividends shown in Table 7.1. Calculate the growth rate of these dividends.

A preferred stockholder is sometimes referred to as a residual owner, since in essence he or she receives what is left-the residual-after all other claims on the firm's income and assets have been satisfied.

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

________ is a guide to a firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry.

A prospectus is another term for a firm's annual report showing the firm's prospects for the coming year.

ADRs are ________.

Harry Corporation's common stock currently sells for $180 per share. Harry just paid a dividend of $10.18 and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Harry Corporation's stock sell for one year from now?

In an efficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

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