Question 1

The par value on common stock has all of the following characteristics EXCEPT

Accepted Answer

A)  a generally low value. 
B)  some states tax according to the par value. 
C)  indicates the market value at which the stock was originally sold. 
D)  stated in the corporate charter. 
A)  a generally low value. 
B)  some states tax according to the par value. 
C)  indicates the market value at which the stock was originally sold. 
D)  stated in the corporate charter. C

Question 2

According to the efficient market theory,

Accepted Answer

A)  prices of actively traded stocks can be under- or over-valued in an efficient market, and bear searching out. 
B)  prices of actively traded stocks can only be under-valued in an efficient market. 
C)  prices of actively traded stocks do not differ from their true values in an efficient market. 
D)  prices of actively traded stocks can only be over-valued in an efficient market. 
A)  prices of actively traded stocks can be under- or over-valued in an efficient market, and bear searching out. 
B)  prices of actively traded stocks can only be under-valued in an efficient market. 
C)  prices of actively traded stocks do not differ from their true values in an efficient market. 
D)  prices of actively traded stocks can only be over-valued in an efficient market. C

Question 3

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market premium is 4 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be

Accepted Answer

A)  overvalued. 
B)  undervalued. 
C)  properly valued. 
D)  not enough information to tell. 
A)  overvalued. 
B)  undervalued. 
C)  properly valued. 
D)  not enough information to tell. B

Question 4

An ADR is

Accepted Answer

A)  a claim issued by a U.S. bank representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors. 
B)  a claim issued by a foreign bank representing ownership of shares of a foreign company's stock held on deposit by the foreign bank and is issued in dollars to U.S. investors. 
C)  a claim issued by a U.S. bank representing ownership of shares of a U.S. company's stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors. 
D)  none of the above. 
A)  a claim issued by a U.S. bank representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors. 
B)  a claim issued by a foreign bank representing ownership of shares of a foreign company's stock held on deposit by the foreign bank and is issued in dollars to U.S. investors. 
C)  a claim issued by a U.S. bank representing ownership of shares of a U.S. company's stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors. 
D)  none of the above.

Question 5

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. Assuming Tangshan China's most recent dividend was $5.50, what is the required rate of return on Tangshan's stock?

Accepted Answer

A)  7.3% 
B)  8.6% 
C)  9.5% 
D)  10.6% 
A)  7.3% 
B)  8.6% 
C)  9.5% 
D)  10.6%

Question 6

In response to the stock market's reaction to its dividend policy, the Nico's Toy Company has decided to increase its dividend payment at a rate of 4 percent per year. The firm's most recent dividend is $3.25 and the required rate of interest is 9 percent. What is the maximum you would be willing to pay for a share of the stock?

Accepted Answer

P = D1/(r - g) = 3.2

Question 7

A violation of preferred stock restrictive covenants usually permits preferred shareholders to

Accepted Answer

A)  force the company into bankruptcy. 
B)  sell their shares. 
C)  force the retirement of the preferred stock at or above its par value. 
D)  force the company to repurchase the shares at a stated amount below par. 
A)  force the company into bankruptcy. 
B)  sell their shares. 
C)  force the retirement of the preferred stock at or above its par value. 
D)  force the company to repurchase the shares at a stated amount below par.

Question 8

If a firm has class A and class B common stock outstanding, it means that

Accepted Answer

A)  each class receives a different dividend. 
B)  the par value of each class is different. 
C)  the dividend paid to one of the classes is tax deductible by the corporation. 
D)  one of the classes is probably non-voting stock. 
A)  each class receives a different dividend. 
B)  the par value of each class is different. 
C)  the dividend paid to one of the classes is tax deductible by the corporation. 
D)  one of the classes is probably non-voting stock.

Question 9

American Depositary Receipts (ADRs) are claims issued by U.S. banks representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors.

Accepted Answer

A) True 
 B)False

Question 10

Unlike equity holders, creditors are owners of the firm.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

All of the following are characteristics of preferred stock EXCEPT

Accepted Answer

A)  it is often considered quasi-debt due to fixed payment obligation. 
B)  it has less restrictive covenants than debt. 
C)  it gives the holder voting rights which permit selection of the firm's directors. 
D)  its holders have priority over common stockholders in the liquidation of assets. 
A)  it is often considered quasi-debt due to fixed payment obligation. 
B)  it has less restrictive covenants than debt. 
C)  it gives the holder voting rights which permit selection of the firm's directors. 
D)  its holders have priority over common stockholders in the liquidation of assets.

Question 13

Table 7.1  
-The required return is assumed to be 17 percent. Using the Gordon model, calculate the per share value of the stock. (See Table 7.1)

Accepted Answer

The answer of Table 7.1  
-The required return is...

Question 14

Jia's Kitchen Stuff has recently sold 1,000 shares of $6.75 preferred stock. What is the value of the stock assuming 10 percent required rate of return?

Accepted Answer

P = D/r =

Question 15

Regarding the tax treatment of payments to securities holders, it is true that ________, while ________.

Accepted Answer

A)  interest and preferred stock dividends are not tax-deductible; common stock dividends are tax deductible 
B)  interest and preferred stock dividends are tax-deductible; common stock dividends are not tax-deductible 
C)  common stock dividends and preferred stock dividends are tax-deductible; interest is not tax-deductible 
D)  common stock dividends and preferred stock dividends are not tax-deductible; interest is tax-deductible 
A)  interest and preferred stock dividends are not tax-deductible; common stock dividends are tax deductible 
B)  interest and preferred stock dividends are tax-deductible; common stock dividends are not tax-deductible 
C)  common stock dividends and preferred stock dividends are tax-deductible; interest is not tax-deductible 
D)  common stock dividends and preferred stock dividends are not tax-deductible; interest is tax-deductible

Question 16

Advantages of issuing common stock versus long-term debt include all of the following EXCEPT

Accepted Answer

A)  the effects of dilution on earnings and voting power. 
B)  no maturity. 
C)  increases firm's borrowing power. 
D)  no fixed payment obligation. 
A)  the effects of dilution on earnings and voting power. 
B)  no maturity. 
C)  increases firm's borrowing power. 
D)  no fixed payment obligation.

Question 17

Dilution of ownership occurs when a new stock issue results in each present stockholder having a larger number of shares and, thus, a claim to a larger part of the firm's earnings than previously.

Accepted Answer

A) True 
 B)False

Question 18

In valuation of common stock, the price/earnings multiple approach is considered superior to the use of book or liquidation values since it considers expected earnings.

Accepted Answer

A) True 
 B)False

Question 19

Preemptive rights allow existing shareholders to maintain voting control and protect against the dilution of their ownership.

Accepted Answer

A) True 
 B)False

Question 20

The cost of preferred stock is

Accepted Answer

A)  lower than the cost of long-term debt. 
B)  higher than the cost of common stock. 
C)  higher than the cost of long-term debt and lower than the cost of common stock. 
D)  lower than the cost of convertible long-term debt and higher than the cost of common stock. 
A)  lower than the cost of long-term debt. 
B)  higher than the cost of common stock. 
C)  higher than the cost of long-term debt and lower than the cost of common stock. 
D)  lower than the cost of convertible long-term debt and higher than the cost of common stock.

The par value on common stock has all of the following characteristics EXCEPT

According to the efficient market theory,

An ADR is

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. Assuming Tangshan China's most recent dividend was $5.50, what is the required rate of return on Tangshan's stock?

A violation of preferred stock restrictive covenants usually permits preferred shareholders to

If a firm has class A and class B common stock outstanding, it means that

American Depositary Receipts (ADRs) are claims issued by U.S. banks representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors.

Unlike equity holders, creditors are owners of the firm.

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

All of the following are characteristics of preferred stock EXCEPT

Table 7.1 -The required return is assumed to be 17 percent. Using the Gordon model, calculate the per share value of the stock. (See Table 7.1)

Jia's Kitchen Stuff has recently sold 1,000 shares of $6.75 preferred stock. What is the value of the stock assuming 10 percent required rate of return?

Regarding the tax treatment of payments to securities holders, it is true that , while .

Advantages of issuing common stock versus long-term debt include all of the following EXCEPT

Dilution of ownership occurs when a new stock issue results in each present stockholder having a larger number of shares and, thus, a claim to a larger part of the firm's earnings than previously.

In valuation of common stock, the price/earnings multiple approach is considered superior to the use of book or liquidation values since it considers expected earnings.

Preemptive rights allow existing shareholders to maintain voting control and protect against the dilution of their ownership.

The cost of preferred stock is

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

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Exam 7: Stock Valuation

The par value on common stock has all of the following characteristics EXCEPT

According to the efficient market theory,

An ADR is

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. Assuming Tangshan China's most recent dividend was $5.50, what is the required rate of return on Tangshan's stock?

A violation of preferred stock restrictive covenants usually permits preferred shareholders to

If a firm has class A and class B common stock outstanding, it means that

American Depositary Receipts (ADRs) are claims issued by U.S. banks representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors.

Unlike equity holders, creditors are owners of the firm.

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

All of the following are characteristics of preferred stock EXCEPT

Table 7.1 -The required return is assumed to be 17 percent. Using the Gordon model, calculate the per share value of the stock. (See Table 7.1)

Jia's Kitchen Stuff has recently sold 1,000 shares of $6.75 preferred stock. What is the value of the stock assuming 10 percent required rate of return?

Regarding the tax treatment of payments to securities holders, it is true that ________, while ________.

Advantages of issuing common stock versus long-term debt include all of the following EXCEPT

Dilution of ownership occurs when a new stock issue results in each present stockholder having a larger number of shares and, thus, a claim to a larger part of the firm's earnings than previously.

In valuation of common stock, the price/earnings multiple approach is considered superior to the use of book or liquidation values since it considers expected earnings.

Preemptive rights allow existing shareholders to maintain voting control and protect against the dilution of their ownership.

The cost of preferred stock is

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

Regarding the tax treatment of payments to securities holders, it is true that , while .