Question 1

Discuss two reasons why preferred stock would be viewed as less risky than common stock to investors.

Accepted Answer

Preferred stockholders are paid before c

Question 2

You are evaluating the purchase of Charbridge,Inc.common stock which currently pays no dividend and is not expected to do so for many years.Because of rapidly growing sales and profits,you believe the stock will be worth $51.50 in 3 years.If your required rate of return is 16%,what is the stock worth today?

Accepted Answer

A) $59.74 
B) $51.25 
C) $32.99 
D) $0.00 because stocks that do not pay dividends have no value. 
A) $59.74 
B) $51.25 
C) $32.99 
D) $0.00 because stocks that do not pay dividends have no value.

Question 3

Expected cash flow for a preferred stock primarily consists of

Accepted Answer

A) dividend payments. 
B) changes in the price of the stock. 
C) interest payments. 
D) both A and B. 
A) dividend payments. 
B) changes in the price of the stock. 
C) interest payments. 
D) both A and B.

Question 4

A decrease in the ________ will cause an increase in common stock value.

Accepted Answer

A) growth rate 
B) required rate of return 
C) last paid dividend 
D) both B and C 
A) growth rate 
B) required rate of return 
C) last paid dividend 
D) both B and C

Question 5

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following?

Accepted Answer

A) (D1 + g)/Vc 
B) D1/Vc + g 
C) D1/g 
D) D1/Vc 
A) (D1 + g)/Vc 
B) D1/Vc + g 
C) D1/g 
D) D1/Vc

Question 6

You are considering the purchase of Miller Manufacturing,Inc.'s common stock.The stock is selling for $21.00 per share.The next dividend is expected to be $2.10,and you expect the dividend to keep growing at a constant rate.If the stock is returning 15%,calculate the growth rate of dividends.

Accepted Answer

A) 3% 
B) 5% 
C) 8% 
D) 10% 
A) 3% 
B) 5% 
C) 8% 
D) 10%

Question 7

Which investor incurs the greatest risk?

Accepted Answer

A) Mortgage bondholder 
B) Preferred stockholder 
C) Common stockholder 
D) Debenture bondholder 
A) Mortgage bondholder 
B) Preferred stockholder 
C) Common stockholder 
D) Debenture bondholder

Question 8

Common stockholders expect greater returns than bondholders because

Accepted Answer

A) they have no legal right to receive dividends. 
B) they bear greater risk. 
C) in the event of liquidation,they are only entitled to receive any cash that is left after all creditors are paid. 
D) all of the above. 
A) they have no legal right to receive dividends. 
B) they bear greater risk. 
C) in the event of liquidation,they are only entitled to receive any cash that is left after all creditors are paid. 
D) all of the above.

Question 9

Marjen,Inc.just paid a dividend of $5.Marjen stock currently sells for $73.57.The return on stocks like Marjen,Inc.is around 10%.What is the implied growth rate of dividends.

Accepted Answer

A) 1% 
B) 3% 
C) 5% 
D) 7% 
A) 1% 
B) 3% 
C) 5% 
D) 7%

Question 10

World Wide Interlink Corp.has decided to undertake a large project.Consequently,there is a need for additional funds.The financial manager plans to issue preferred stock with an annual dividend of $5 per share.The stock will have a par value of $30.If investors' required rate of return on this investment is currently 20%,what should the preferred stock's market value be?

Accepted Answer

A) $10 
B) $15 
C) $20 
D) $25 
A) $10 
B) $15 
C) $20 
D) $25

Question 11

Which of the following formulas is appropriate to find the value of preferred stock with a fixed dividend?

Accepted Answer

A) Value of preferred stock = Annual Preferred Stock Dividend (1 + growth rate)/Market's Required Yield on Preferred Stock 
B) Value of preferred stock = Annual Preferred Stock Dividend (1 + growth rate)/Market's Required Yield on Preferred Stock - growth rate 
C) Value of preferred stock = Annual Preferred Stock Dividend/Market's Required Yield on Preferred Stock 
D) Value of preferred stock = Annual Preferred Stock Dividend/Investor's Required Yield on Preferred Stock 
A) Value of preferred stock = Annual Preferred Stock Dividend (1 + growth rate)/Market's Required Yield on Preferred Stock 
B) Value of preferred stock = Annual Preferred Stock Dividend (1 + growth rate)/Market's Required Yield on Preferred Stock - growth rate 
C) Value of preferred stock = Annual Preferred Stock Dividend/Market's Required Yield on Preferred Stock 
D) Value of preferred stock = Annual Preferred Stock Dividend/Investor's Required Yield on Preferred Stock

Question 12

A company may issue multiple classes of preferred stock.

Accepted Answer

A) True 
 B)False

Question 13

You can purchase one share of Sumter Company common stock for $80 today.You expect the price of the common stock to increase to $85 per share in one year.The company pays an annual dividend of $3.00 per share.What is your expected rate of return for Sumter stock?

Accepted Answer

$80.00 = @#IMG-DLM& 
+ @#IMG-DLM& 
$80.0

Question 14

Distinguish between primary stock market transactions and secondary stock market transaction.

Accepted Answer

When a company issues stock to the publi

Question 15

Walmart's current earnings per share of $5.02 are expected to grow at a rate of 17% per year for the next few years.Using a P/E ratio of 13.46,what is a reasonable value for a share of Walmart Stock.

Accepted Answer

A reasonable value f

Question 16

RAH Inc.is not publicly traded,but the P/E ratios of it's 4 closest competitors are 15,15.3,15.7,and 16.5.RAH's current earnings per share are $1.50.They are expected to grow at 6% for the next few years.What is a reasonable price for a share of RAH stock?

Accepted Answer

An appropriate P/E ratio would

Question 17

Which of the following statements concerning preferred stock is correct?

Accepted Answer

A) Preferred stock generally is more costly to the firm than common stock. 
B) Most issues of preferred stock have a cumulative feature. 
C) Preferred dividend payments are tax-deductible. 
D) Preferred stock is a riskier form of capital to the firm than bonds. 
A) Preferred stock generally is more costly to the firm than common stock. 
B) Most issues of preferred stock have a cumulative feature. 
C) Preferred dividend payments are tax-deductible. 
D) Preferred stock is a riskier form of capital to the firm than bonds.

Question 18

Tannerly Worldwide's common stock is currently selling for $48 a share.If the expected dividend at the end of the year is $2.40 and last year's dividend was $2.00,what is the rate of return implicit in the current stock price?

Accepted Answer

R_c = 2.40/48 + (2.40

Question 19

Green Corp.'s preferred stock is selling for $20.83.If the company pays $2.50 annual dividends,what is the expected rate of return on its stock?

Accepted Answer

A) 8.33% 
B) 12.00% 
C) 2.50% 
D) 20.00% 
A) 8.33% 
B) 12.00% 
C) 2.50% 
D) 20.00%

Question 20

Large,established technology companies such as Apple,Dell,Intel and Microsoft all trade on the NYSE.

Accepted Answer

A) True 
 B)False

Discuss two reasons why preferred stock would be viewed as less risky than common stock to investors.

Expected cash flow for a preferred stock primarily consists of

A decrease in the ________ will cause an increase in common stock value.

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following?

You are considering the purchase of Miller Manufacturing,Inc.'s common stock.The stock is selling for $21.00 per share.The next dividend is expected to be $2.10,and you expect the dividend to keep growing at a constant rate.If the stock is returning 15%,calculate the growth rate of dividends.

Which investor incurs the greatest risk?

Common stockholders expect greater returns than bondholders because

Marjen,Inc.just paid a dividend of $5.Marjen stock currently sells for $73.57.The return on stocks like Marjen,Inc.is around 10%.What is the implied growth rate of dividends.

Which of the following formulas is appropriate to find the value of preferred stock with a fixed dividend?

A company may issue multiple classes of preferred stock.

You can purchase one share of Sumter Company common stock for $80 today.You expect the price of the common stock to increase to $85 per share in one year.The company pays an annual dividend of $3.00 per share.What is your expected rate of return for Sumter stock?

Distinguish between primary stock market transactions and secondary stock market transaction.

Walmart's current earnings per share of $5.02 are expected to grow at a rate of 17% per year for the next few years.Using a P/E ratio of 13.46,what is a reasonable value for a share of Walmart Stock.

RAH Inc.is not publicly traded,but the P/E ratios of it's 4 closest competitors are 15,15.3,15.7,and 16.5.RAH's current earnings per share are $1.50.They are expected to grow at 6% for the next few years.What is a reasonable price for a share of RAH stock?

Which of the following statements concerning preferred stock is correct?

Tannerly Worldwide's common stock is currently selling for $48 a share.If the expected dividend at the end of the year is $2.40 and last year's dividend was $2.00,what is the rate of return implicit in the current stock price?

Green Corp.'s preferred stock is selling for $20.83.If the company pays $2.50 annual dividends,what is the expected rate of return on its stock?

Large,established technology companies such as Apple,Dell,Intel and Microsoft all trade on the NYSE.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters

Exam 10: Stock Valuation

Discuss two reasons why preferred stock would be viewed as less risky than common stock to investors.

Expected cash flow for a preferred stock primarily consists of

A decrease in the ________ will cause an increase in common stock value.

The expected rate of return on a share of common stock whose dividends are growing at a constant rate (g)is which of the following?

You are considering the purchase of Miller Manufacturing,Inc.'s common stock.The stock is selling for $21.00 per share.The next dividend is expected to be $2.10,and you expect the dividend to keep growing at a constant rate.If the stock is returning 15%,calculate the growth rate of dividends.

Which investor incurs the greatest risk?

Common stockholders expect greater returns than bondholders because

Marjen,Inc.just paid a dividend of $5.Marjen stock currently sells for $73.57.The return on stocks like Marjen,Inc.is around 10%.What is the implied growth rate of dividends.

Which of the following formulas is appropriate to find the value of preferred stock with a fixed dividend?

A company may issue multiple classes of preferred stock.

You can purchase one share of Sumter Company common stock for $80 today.You expect the price of the common stock to increase to $85 per share in one year.The company pays an annual dividend of $3.00 per share.What is your expected rate of return for Sumter stock?

Distinguish between primary stock market transactions and secondary stock market transaction.

Walmart's current earnings per share of $5.02 are expected to grow at a rate of 17% per year for the next few years.Using a P/E ratio of 13.46,what is a reasonable value for a share of Walmart Stock.

RAH Inc.is not publicly traded,but the P/E ratios of it's 4 closest competitors are 15,15.3,15.7,and 16.5.RAH's current earnings per share are $1.50.They are expected to grow at 6% for the next few years.What is a reasonable price for a share of RAH stock?

Which of the following statements concerning preferred stock is correct?

Tannerly Worldwide's common stock is currently selling for $48 a share.If the expected dividend at the end of the year is $2.40 and last year's dividend was $2.00,what is the rate of return implicit in the current stock price?

Green Corp.'s preferred stock is selling for $20.83.If the company pays $2.50 annual dividends,what is the expected rate of return on its stock?

Large,established technology companies such as Apple,Dell,Intel and Microsoft all trade on the NYSE.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Corporate Risk Management

Filters