Question 1

Determine the rate of return on a preferred stock that costs $50 and pays a $6 per share dividend.

Accepted Answer

K = Div =

Question 2

If a company has issued preferred stock

Accepted Answer

A)  the common shareholders will have weaker voting rights. 
B)  preferred shareholders will be allowed to choose one or more members of the board of directors. 
C)  dividends on preferred stock will be higher than the common dividends. 
D)  preferred dividends will have to be paid before the company can pay dividends on common stock. 
A)  the common shareholders will have weaker voting rights. 
B)  preferred shareholders will be allowed to choose one or more members of the board of directors. 
C)  dividends on preferred stock will be higher than the common dividends. 
D)  preferred dividends will have to be paid before the company can pay dividends on common stock.

Question 3

Butler, Inc.'s return on equity is 17% and management retains 75% of earnings for investment purposes. Based on this information, what will be the firm's growth rate?

Accepted Answer

A)  4.25% 
B)  22.67% 
C)  44.12% 
D)  12.75% 
A)  4.25% 
B)  22.67% 
C)  44.12% 
D)  12.75%

Question 4

The shareholder can cast all votes for a single candidate or split them among various candidates through

Accepted Answer

A)  proxy fights. 
B)  cumulative voting. 
C)  call provisions. 
D)  majority voting. 
A)  proxy fights. 
B)  cumulative voting. 
C)  call provisions. 
D)  majority voting.

Question 5

ABC, Inc. just paid a dividend of $2. ABC expects dividends to grow at 10%. The return on stocks like ABC, Inc. is typically around 12%. What is the most you would pay for a share of ABC stock?

Accepted Answer

A)  $100 
B)  $110 
C)  $120 
D)  $130 
A)  $100 
B)  $110 
C)  $120 
D)  $130

Question 6

The P/E ratio is calculated by dividing

Accepted Answer

A)  the current stock price by stockholders' equity. 
B)  total assets by net income. 
C)  the current stock price by earnings per share. 
D)  the current stock price by operating cash flow per share. 
A)  the current stock price by stockholders' equity. 
B)  total assets by net income. 
C)  the current stock price by earnings per share. 
D)  the current stock price by operating cash flow per share.

Question 7

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 8

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& $80.00

Question 9

Walmart's current earnings per share of $4.60 are expected to grow only at a rate of 2% per year for the next few years. Using a P/E ratio of 15, what is a reasonable value for a share of Walmart Stock.

Accepted Answer

A reasonable value f

Question 10

Preferred stock is similar to common stock in that

Accepted Answer

A)  it has no fixed maturity date. 
B)  the nonpayment of dividends can bring on bankruptcy. 
C)  dividends are limited in amount. 
D)  both carry voting rights. 
A)  it has no fixed maturity date. 
B)  the nonpayment of dividends can bring on bankruptcy. 
C)  dividends are limited in amount. 
D)  both carry voting rights.

Question 11

Miller/Hershey's preferred stock is selling at $54 on the market and pays an annual dividend of $4.20 per share.
a. What is the expected rate of return on the stock?
b. If an investor's required rate of return is 9%, what is the value of the stock for that investor?
c. Considering the investor's required rate of return, does this stock seem to be a desirable investment?

Accepted Answer

a. R = D/V
R = $4.20/54
R = 7.

Question 12

Stock valuation is more precise than bond valuation as stock cash flows are more certain.

Accepted Answer

A) True 
 B)False

Question 13

Common stockholders are essentially

Accepted Answer

A)  creditors of the firm. 
B)  managers of the firm. 
C)  owners of the firm. 
D)  all of the above. 
A)  creditors of the firm. 
B)  managers of the firm. 
C)  owners of the firm. 
D)  all of the above.

Question 14

Evidence exists that directors

Accepted Answer

A)  aggressively represent the interests of shareholders. 
B)  are quick to replace or reduce the compensation of underperforming CEOs. 
C)  often represent the interests of the managers who nominated them for directorships. 
D)  are vigilant in requiring that the firm's assets be used efficiently. 
A)  aggressively represent the interests of shareholders. 
B)  are quick to replace or reduce the compensation of underperforming CEOs. 
C)  often represent the interests of the managers who nominated them for directorships. 
D)  are vigilant in requiring that the firm's assets be used efficiently.

Question 15

Which of the following factors will influence a firm's P/E ratio?

Accepted Answer

A)  The investors' required rate of return 
B)  Firm investment opportunities 
C)  General market conditions 
D)  All of the above 
A)  The investors' required rate of return 
B)  Firm investment opportunities 
C)  General market conditions 
D)  All of the above

Question 16

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 17

Which of the following statements is true?

Accepted Answer

A)  Preferred stockholders are entitled to dividends before common stockholders can receive dividends. 
B)  Preferred stock, like common stock, usually has no maturity; i.e., the corporation does not pay back the investment. 
C)  The market value of preferred stock, like bonds, will usually fluctuate in value primarily as the result of market rates of interest. 
D)  All of the above. 
A)  Preferred stockholders are entitled to dividends before common stockholders can receive dividends. 
B)  Preferred stock, like common stock, usually has no maturity; i.e., the corporation does not pay back the investment. 
C)  The market value of preferred stock, like bonds, will usually fluctuate in value primarily as the result of market rates of interest. 
D)  All of the above.

Question 18

Davis Gas & Electric issued preferred stock in 1985 that had a par value of $50. The stock pays a dividend of 7.875%. Assume that shares are currently selling for $62.50. What is the preferred stockholder's expected rate of return? Round to the nearest 0.01%.

Accepted Answer

A)  6.30% 
B)  7.88% 
C)  10.25% 
D)  5.02% 
A)  6.30% 
B)  7.88% 
C)  10.25% 
D)  5.02%

Question 19

The higher a firm's P/E ratio, the more optimistic investors' feel about the firm's growth prospects.

Accepted Answer

A) True 
 B)False

Question 20

The GAP's most recent earnings per share were $1.75. Analysts forecast next year's earnings per share at $1.88. If the appropriate P/E ratio is 15, a share of GAP stock should be valued at

Accepted Answer

A)  $28.20. 
B)  $26.25. 
C)  $27.23. 
D)  $8.57. 
A)  $28.20. 
B)  $26.25. 
C)  $27.23. 
D)  $8.57.

Determine the rate of return on a preferred stock that costs $50 and pays a $6 per share dividend.

If a company has issued preferred stock

Butler, Inc.'s return on equity is 17% and management retains 75% of earnings for investment purposes. Based on this information, what will be the firm's growth rate?

The shareholder can cast all votes for a single candidate or split them among various candidates through

ABC, Inc. just paid a dividend of $2. ABC expects dividends to grow at 10%. The return on stocks like ABC, Inc. is typically around 12%. What is the most you would pay for a share of ABC stock?

The P/E ratio is calculated by dividing

Common stockholders expect greater returns than bondholders because

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?

Walmart's current earnings per share of $4.60 are expected to grow only at a rate of 2% per year for the next few years. Using a P/E ratio of 15, what is a reasonable value for a share of Walmart Stock.

Preferred stock is similar to common stock in that

Stock valuation is more precise than bond valuation as stock cash flows are more certain.

Common stockholders are essentially

Evidence exists that directors

Which of the following factors will influence a firm's P/E ratio?

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?

Which of the following statements is true?

Davis Gas & Electric issued preferred stock in 1985 that had a par value of $50. The stock pays a dividend of 7.875%. Assume that shares are currently selling for $62.50. What is the preferred stockholder's expected rate of return? Round to the nearest 0.01%.

The higher a firm's P/E ratio, the more optimistic investors' feel about the firm's growth prospects.

The GAP's most recent earnings per share were $1.75. Analysts forecast next year's earnings per share at $1.88. If the appropriate P/E ratio is 15, a share of GAP stock should be valued at

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

Determine the rate of return on a preferred stock that costs $50 and pays a $6 per share dividend.

If a company has issued preferred stock

Butler, Inc.'s return on equity is 17% and management retains 75% of earnings for investment purposes. Based on this information, what will be the firm's growth rate?

The shareholder can cast all votes for a single candidate or split them among various candidates through

ABC, Inc. just paid a dividend of $2. ABC expects dividends to grow at 10%. The return on stocks like ABC, Inc. is typically around 12%. What is the most you would pay for a share of ABC stock?

The P/E ratio is calculated by dividing

Common stockholders expect greater returns than bondholders because

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?

Walmart's current earnings per share of $4.60 are expected to grow only at a rate of 2% per year for the next few years. Using a P/E ratio of 15, what is a reasonable value for a share of Walmart Stock.

Preferred stock is similar to common stock in that

Stock valuation is more precise than bond valuation as stock cash flows are more certain.

Common stockholders are essentially

Evidence exists that directors

Which of the following factors will influence a firm's P/E ratio?

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?

Which of the following statements is true?

Davis Gas & Electric issued preferred stock in 1985 that had a par value of $50. The stock pays a dividend of 7.875%. Assume that shares are currently selling for $62.50. What is the preferred stockholder's expected rate of return? Round to the nearest 0.01%.

The higher a firm's P/E ratio, the more optimistic investors' feel about the firm's growth prospects.

The GAP's most recent earnings per share were $1.75. Analysts forecast next year's earnings per share at $1.88. If the appropriate P/E ratio is 15, a share of GAP stock should be valued at

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