Question 1

The lack of a fixed common stock dividend provides the corporation greater flexibility versus the use of bonds or preferred stock.

Accepted Answer

A) True 
 B)False

Question 2

Dolci's Theme Parks currently pays a $1.00 common stock dividend. Dividends have been growing at a 5% annual rate and are expected to continue growing at this rate for the next 2 years. Thereafter the growth rate is expected to be 0% for the foreseeable future. What is the current value of Dolci common stock to an investor requiring a 16% rate of return?

Accepted Answer

A) $6.03 
B) $9.55 
C) $6.85 
D) $6.56 
A) $6.03 
B) $9.55 
C) $6.85 
D) $6.56

Question 3

Typically a corporation's board of directors would not make which one of the following decisions?

Accepted Answer

A) compensation for the president of the corporation 
B) who can purchase the corporation's common stock 
C) determine long-term corporate policy 
D) decide whether to build a new $1 billion casino or not 
A) compensation for the president of the corporation 
B) who can purchase the corporation's common stock 
C) determine long-term corporate policy 
D) decide whether to build a new $1 billion casino or not

Question 4

Investors view common stock as a riskier investment than bonds or preferred stock.

Accepted Answer

A) True 
 B)False

Question 5

Common stock provides the investor a residual claim on both the firm's assets and the firm's cash flow.

Accepted Answer

A) True 
 B)False

Question 6

Everything else being the same, the higher a firm's earnings growth, the lower the value of its common stock.

Accepted Answer

A) True 
 B)False

Question 7

In the case of corporate bankruptcy, common stock's residual claim becomes especially valuable.

Accepted Answer

A) True 
 B)False

Question 8

Why do investors require a higher expected rate of return on common stock than on bonds?

Accepted Answer

A) Common stock is a riskier investment than bonds. 
B) Common stock is a lower risk investment than bonds. 
C) Common stock has a shorter maturity than bonds. 
D) Dividends are considered taxable income, but interest is not. 
A) Common stock is a riskier investment than bonds. 
B) Common stock is a lower risk investment than bonds. 
C) Common stock has a shorter maturity than bonds. 
D) Dividends are considered taxable income, but interest is not.

Question 9

Casey's Sports Books currently pays a $2.30 common stock dividend. Dividends have been recently growing at a 12% annual rate and are expected to continue growing at this rate for the next 3 years. Thereafter the growth rate is expected to be 5% for the foreseeable future. What is the current value of Casey's common stock to an investor requiring an 14% rate of return?

Accepted Answer

A) $28.98 
B) $32.11 
C) $18.40 
D) $28.62 
A) $28.98 
B) $32.11 
C) $18.40 
D) $28.62

Question 10

Lapidus Restaurants Incorporated currently pays a $5.00 common stock dividend. The dividend is expected to remain at $5.00 and not expected to grow in the future. What is the current value of Lapidus Restaurants common stock to an investor requiring an 11% rate of return?

Accepted Answer

A) $100.00 
B) $83.33 
C) $50.45 
D) $45.45 
A) $100.00 
B) $83.33 
C) $50.45 
D) $45.45

The lack of a fixed common stock dividend provides the corporation greater flexibility versus the use of bonds or preferred stock.

Typically a corporation's board of directors would not make which one of the following decisions?

Investors view common stock as a riskier investment than bonds or preferred stock.

Common stock provides the investor a residual claim on both the firm's assets and the firm's cash flow.

Everything else being the same, the higher a firm's earnings growth, the lower the value of its common stock.

In the case of corporate bankruptcy, common stock's residual claim becomes especially valuable.

Why do investors require a higher expected rate of return on common stock than on bonds?

Lapidus Restaurants Incorporated currently pays a $5.00 common stock dividend. The dividend is expected to remain at $5.00 and not expected to grow in the future. What is the current value of Lapidus Restaurants common stock to an investor requiring an 11% rate of return?

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

The Relationship Between Risk and Return

Time Value of Money

Fixed Income Securities: Bonds and Preferred Stock

Cost of Capital

Introduction to Capital Budgeting and Cash Flow Estimation

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters

Exam 7: Common Stock

The lack of a fixed common stock dividend provides the corporation greater flexibility versus the use of bonds or preferred stock.

Typically a corporation's board of directors would not make which one of the following decisions?

Investors view common stock as a riskier investment than bonds or preferred stock.

Common stock provides the investor a residual claim on both the firm's assets and the firm's cash flow.

Everything else being the same, the higher a firm's earnings growth, the lower the value of its common stock.

In the case of corporate bankruptcy, common stock's residual claim becomes especially valuable.

Why do investors require a higher expected rate of return on common stock than on bonds?

Lapidus Restaurants Incorporated currently pays a $5.00 common stock dividend. The dividend is expected to remain at $5.00 and not expected to grow in the future. What is the current value of Lapidus Restaurants common stock to an investor requiring an 11% rate of return?

Introduction

Financial Markets and Financial Instruments

Review of Financial Statements and Selected Ratios

The Relationship Between Risk and Return

Time Value of Money

Fixed Income Securities: Bonds and Preferred Stock

Cost of Capital

Introduction to Capital Budgeting and Cash Flow Estimation

Capital Budgeting Decision Methods

An Introduction to Hotel Valuation

Capital Structure

Filters