Exam 7: Stock Valuation

The board of directors of Scooter World, Inc. has declared $5.00 common stock dividend and accepted a plan to freeze the dividend at $5 per year indefinitely. What is the value of the Scooter World's common stock if the required rate of interest is 15 percent?

A firm issued 10,000 shares of no par-value common stock, receiving proceeds of $40 per share. The accounting entry is

A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40 per share. The accounting entry for the paid-in capital in excess of par account is

Preferred stock that provides for dividend payments based on certain formulas allowing preferred stockholders to participate with common stockholders in the receipt of dividends beyond a specified amount is called cumulative preferred stock.

Cumulative preferred stocks are preferred stocks for which all passed (unpaid) dividends in arrears must be paid in additional shares of preferred stock prior to the payment of dividends to common stockholders.

As a form of financing, equity capital

Equity capital can be raised through

Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are

A professional involved in analyzing securities and constructing investment portfolios is called

In an inefficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

Economically rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true?

Because equity holders are the last to receive any distribution of assets as a result of bankruptcy proceedings, common stockholders expect

Julie's X-Ray Company paid $2.00 per share in common stock dividends last year. The company's policy is to allow its dividend to grow at 5 percent for 4 years and then the rate of growth changes to 3 percent per year from year five and on. What is the value of the stock if the required rate of return is 8 percent?

The amount of the claim of preferred stockholders in liquidation is normally equal to the market value of the preferred stock.

The Erie Heating Company has been very successful in the past four years. Over these years, it paid common stock dividend of $4 in the first year, $4.20 in the second year, $4.41 in the third year, and its most recent dividend was $4.63. The company wishes to continue this dividend growth indefinitely. What is the value of the company's stock if the required rate of return is 12 percent?

The preemptive right gives the shareholder the right

China America Manufacturing has a beta of 1.50, the risk-free rate of interest is currently 12 percent, and the required return on the market portfolio is 18 percent. The company plans to pay a dividend of $2.45 per share in the coming year and anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2001-2003 period. Estimate the value of China America Manufacturing's stock.

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

To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

Firms occasionally repurchase stock in order to alter capital structure or to increase the returns to the owners.