Exam 7: Stock Valuation

Preemptive rights allow common stockholders to maintain their proportionate ownership in the corporation when new issues are made.

All of the following are characteristics of common stock EXCEPT

All of the following are true about the issuance of non-voting common stock EXCEPT

A group formed by an investment banker to share the financial risk associated with underwriting new securities is a(n)

In the case of liquidation, bondholders are paid first, followed by preferred stockholders, followed by common stockholders.

Interest paid to bondholders is tax deductible but interest paid to stockholders is not.

Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________.

At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Based on this information, Tangshan's book value per share of common stock is ________.

The free cash flow valuation model can be used to determines the value of an entire company as the present value of its expected free cash flows discounted at the firm's weighted average cost of capital.

Zheng Sen's Chinese Take-Out had earnings before interest and taxes of $4,000,000 last year. The firm has a marginal tax rate of 40 percent and currently has the following capital structure: (a) Calculate the firm's after-tax return on equity (ROE) and earnings per share (EPS). (b) If the firm retires $4,000,000 of preferred stock using the proceeds from an equal increase in long-term debt, what would have been the after-tax return on equity (ROE) and earnings per share (EPS)? (c) If the firm retires $4,000,000 of preferred stock using the proceeds from the sale of 500,000 shares of common stock, what would have been the after-tax return on equity (ROE) and earnings per share (EPS)?

At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Next year, Tangshan is projecting that it will have net income of $1.5 million. If the average PE multiple in Tangshan's industry is 15, what should be the price of Tangshan's stock?

If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

A firm has the balance sheet accounts, common stock, and paid-in capital in excess of par, with values of $10,000 and $250,000, respectively. The firm has 10,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold for

From the corporation's point of view, the advantages of issuing preferred stock include all of the following EXCEPT

Shares of stock currently owned by the firm's shareholders are called

Nico Corporation's common stock currently sells for $180 per share. Nico just paid a dividend of $10.18 and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Nico Corporation's stock sell for one year from now?

Investors purchase a stock when they believe that it is undervalued and sell when they feel that it is overvalued.

Stock rights allow stockholders to purchase additional shares of stock in direct proportion to the number of shares they own.

Which of the following is NOT typically a feature of preferred stock?

Aunt Tilly's Fur Company has been experiencing several years of financial difficulty and, thus, has considered maintaining its dividend payment at $2.50 indefinitely. What is the value of its common stock if the required rate of return is 8.5 percent?