Question 1

CEOs naming friends to the board of directors and paying them more than the norm is an example of the

Accepted Answer

A)  agency problem. 
B)  preemptive right. 
C)  majority voting feature. 
D)  proxy fights. 
A)  agency problem. 
B)  preemptive right. 
C)  majority voting feature. 
D)  proxy fights.

Question 2

A company may issue multiple classes of preferred stock.

Accepted Answer

A) True 
 B)False

Question 3

You are evaluating the purchase of Cellars, Inc. common stock that just paid a dividend of $1.80. You expect the dividend to grow at a rate of 12% for the next three years. You plan to hold the stock for three years and then sell it. You estimate that a required rate of return of 17.5% will be adequate compensation for this investment. Calculate the present value of the expected dividends.

Accepted Answer

A)  $4.91 
B)  $5.40 
C)  $9.80 
D)  $6.80 
A)  $4.91 
B)  $5.40 
C)  $9.80 
D)  $6.80

Question 4

An issue of preferred stock currently sells for $52.50 per share and pays a constant annual expected dividend of $2.25 per share. The expected return on this security is

Accepted Answer

A)  4.29%. 
B)  0.04%. 
C)  8.33%. 
D)  13.33%. 
A)  4.29%. 
B)  0.04%. 
C)  8.33%. 
D)  13.33%.

Question 5

You are considering the purchase of Wahoo, Inc. The firm just paid a dividend of $4.20 per share. The stock is selling for $115 per share. Security analysts agree with top management in projecting steady growth of 12% in dividends and earnings over the foreseeable future. Your required rate of return for stocks of this type is 17.5%. If you were to purchase and hold the stock for three years, what would the expected dividends be worth today?

Accepted Answer

A)  $12.60 
B)  $9.21 
C)  $17.12 
D)  $15.55 
E)  $11.46 
A)  $12.60 
B)  $9.21 
C)  $17.12 
D)  $15.55 
E)  $11.46

Question 6

National Grit's preferred stock has a par value of $100, sells for $85 and pays $11 each year in dividends. What is the required rate of return?

Accepted Answer

A)  12.9 % 
B)  11% 
C)  1.29% 
D)  8.5% 
A)  12.9 % 
B)  11% 
C)  1.29% 
D)  8.5%

Question 7

What is the value of a preferred stock that pays a $2.10 dividend to an investor with a required rate of return of 6% (round your answer to the nearest $1)?

Accepted Answer

A)  $35 
B)  $23 
C)  $17 
D)  $21 
A)  $35 
B)  $23 
C)  $17 
D)  $21

Question 8

The retail analyst at Morgan-Sachs values stock of the GAP at $38.00 per share. They are using the average industry "forward" P/E ratio of 17. Their forecasted earnings per share for next year is

Accepted Answer

A)  $0.54. 
B)  $1.50. 
C)  $2.24 
D)  There is not enough information calculate earnings per share. 
A)  $0.54. 
B)  $1.50. 
C)  $2.24 
D)  There is not enough information calculate earnings per share.

Question 9

Horizon Communications stock pays a fixed annual dividend of $3.00. Because of lower inflation, the market's required yield on this preferred stock has gone from 12% to 10%. As a result

Accepted Answer

A)  Horizon's dividend decreased by 6 cents. 
B)  the value of Horizon's preferred increased by $3.00. 
C)  the value of Horizon's preferred decreased by $5.00. 
D)  the value of Horizon's preferred increased by $5.00. 
A)  Horizon's dividend decreased by 6 cents. 
B)  the value of Horizon's preferred increased by $3.00. 
C)  the value of Horizon's preferred decreased by $5.00. 
D)  the value of Horizon's preferred increased by $5.00.

Question 10

Evidence that agency costs exists

Accepted Answer

A)  because they are shown in footnotes to the financial statements. 
B)  because stock prices increase when an underperforming CEO is unexpectedly replaced. 
C)  because underperforming CEO's are frequently voted out by shareholders. 
D)  because management often pursues risky but profitable opportunities rather than safer, less profitable opportunities. 
A)  because they are shown in footnotes to the financial statements. 
B)  because stock prices increase when an underperforming CEO is unexpectedly replaced. 
C)  because underperforming CEO's are frequently voted out by shareholders. 
D)  because management often pursues risky but profitable opportunities rather than safer, less profitable opportunities.

Question 11

Cumulative voting allows a shareholder to cast all of his or her votes for one director rather than voting on each director separately.

Accepted Answer

A) True 
 B)False

Question 12

________ gives minority shareholders more power to elect a member to the board of directors.

Accepted Answer

A)  Preemptive right 
B)  Majority voting 
C)  Proxy fights 
D)  Cumulative voting 
A)  Preemptive right 
B)  Majority voting 
C)  Proxy fights 
D)  Cumulative voting

Question 13

Acme Consolidated has a return on equity of 12%. If Acme distributes 60% of earnings as dividends, then we would expect the common shareholders' investment in the firm and the value of the common stock to grow by

Accepted Answer

A)  4.80%. 
B)  7.20%. 
C)  12%. 
D)  6%. 
A)  4.80%. 
B)  7.20%. 
C)  12%. 
D)  6%.

Question 14

Preferred stock is similar to a bond in the following way

Accepted Answer

A)  Preferred stock always contains a maturity date. 
B)  Both investments provide a fixed income. 
C)  Both contain a growth factor similar to common stock. 
D)  None of the above. 
A)  Preferred stock always contains a maturity date. 
B)  Both investments provide a fixed income. 
C)  Both contain a growth factor similar to common stock. 
D)  None of the above.

Question 15

In the event of bankruptcy, preferred stockholders and common stockholders have the same claim on the firm's assets.

Accepted Answer

A) True 
 B)False

Question 16

What allows common stockholders the right to cast a number of votes equal to the number of directors being elected?

Accepted Answer

A)  The majority voting provision 
B)  The casting feature 
C)  The cumulative voting provision 
D)  The proxy method 
A)  The majority voting provision 
B)  The casting feature 
C)  The cumulative voting provision 
D)  The proxy method

Question 17

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

Rc = 2.40/48 + (2.40

Question 18

Nicholas Inc. just paid a $2.00 dividend on its common stock and expects to continue growing dividends at an average rate of 5% each year, from now to infinity. If the required rate of return for this stock is 9% and it is currently selling for $54.50 per share, the stock

Accepted Answer

A)  selling for exactly its intrinsic value. 
B)  there is not information to determine if the stock is overpriced or underpriced. 
C)  underpriced. 
D)  overpriced. 
A)  selling for exactly its intrinsic value. 
B)  there is not information to determine if the stock is overpriced or underpriced. 
C)  underpriced. 
D)  overpriced.

Question 19

In order to determine the value of a share of preferred stock, the discount rate used is the annual dividend percent.

Accepted Answer

A) True 
 B)False

Question 20

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.

CEOs naming friends to the board of directors and paying them more than the norm is an example of the

A company may issue multiple classes of preferred stock.

An issue of preferred stock currently sells for $52.50 per share and pays a constant annual expected dividend of $2.25 per share. The expected return on this security is

National Grit's preferred stock has a par value of $100, sells for $85 and pays $11 each year in dividends. What is the required rate of return?

What is the value of a preferred stock that pays a $2.10 dividend to an investor with a required rate of return of 6% (round your answer to the nearest $1)?

The retail analyst at Morgan-Sachs values stock of the GAP at $38.00 per share. They are using the average industry "forward" P/E ratio of 17. Their forecasted earnings per share for next year is

Horizon Communications stock pays a fixed annual dividend of $3.00. Because of lower inflation, the market's required yield on this preferred stock has gone from 12% to 10%. As a result

Evidence that agency costs exists

Cumulative voting allows a shareholder to cast all of his or her votes for one director rather than voting on each director separately.

________ gives minority shareholders more power to elect a member to the board of directors.

Acme Consolidated has a return on equity of 12%. If Acme distributes 60% of earnings as dividends, then we would expect the common shareholders' investment in the firm and the value of the common stock to grow by

Preferred stock is similar to a bond in the following way

In the event of bankruptcy, preferred stockholders and common stockholders have the same claim on the firm's assets.

What allows common stockholders the right to cast a number of votes equal to the number of directors being elected?

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?

Nicholas Inc. just paid a $2.00 dividend on its common stock and expects to continue growing dividends at an average rate of 5% each year, from now to infinity. If the required rate of return for this stock is 9% and it is currently selling for $54.50 per share, the stock

In order to determine the value of a share of preferred stock, the discount rate used is the annual dividend percent.

Which of the following statements concerning preferred stock is correct?

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

CEOs naming friends to the board of directors and paying them more than the norm is an example of the

A company may issue multiple classes of preferred stock.

An issue of preferred stock currently sells for $52.50 per share and pays a constant annual expected dividend of $2.25 per share. The expected return on this security is

National Grit's preferred stock has a par value of $100, sells for $85 and pays $11 each year in dividends. What is the required rate of return?

What is the value of a preferred stock that pays a $2.10 dividend to an investor with a required rate of return of 6% (round your answer to the nearest $1)?

The retail analyst at Morgan-Sachs values stock of the GAP at $38.00 per share. They are using the average industry "forward" P/E ratio of 17. Their forecasted earnings per share for next year is

Horizon Communications stock pays a fixed annual dividend of $3.00. Because of lower inflation, the market's required yield on this preferred stock has gone from 12% to 10%. As a result

Evidence that agency costs exists

Cumulative voting allows a shareholder to cast all of his or her votes for one director rather than voting on each director separately.

________ gives minority shareholders more power to elect a member to the board of directors.

Acme Consolidated has a return on equity of 12%. If Acme distributes 60% of earnings as dividends, then we would expect the common shareholders' investment in the firm and the value of the common stock to grow by

Preferred stock is similar to a bond in the following way

In the event of bankruptcy, preferred stockholders and common stockholders have the same claim on the firm's assets.

What allows common stockholders the right to cast a number of votes equal to the number of directors being elected?

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?

Nicholas Inc. just paid a $2.00 dividend on its common stock and expects to continue growing dividends at an average rate of 5% each year, from now to infinity. If the required rate of return for this stock is 9% and it is currently selling for $54.50 per share, the stock

In order to determine the value of a share of preferred stock, the discount rate used is the annual dividend percent.

Which of the following statements concerning preferred stock is correct?

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