Exam 7: Stock Valuation

In common stock valuation, any action taken by the financial manager that increases risk will cause an increase in value.

Any action taken by the financial manager that increases risk will also increase the required return.

A firm has an issue of preferred stock outstanding that has a par value of $100 and a 4% dividend. If the current market price of the preferred stock is $50, the yield on the preferred stock is

BFG, Inc. stock currently sells for $75 per share. The firm has total assets of $1,000,000 and total liabilities, including preferred stock, of $350,000. If the firm has 10,000 shares of common stock outstanding, (a) what is the book value of each share of common stock? (b) is the stock overvalued or undervalued in the marketplace? (c) what might be the reason(s) for your answer in (b).

C. Edward Accounting Services has an outstanding issue of 1,000 shares preferred stock with a $100 par value, an 8 percent annual dividend, and 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the last two years, how much must preferred stockholders be paid prior to paying dividends to common stockholders?

The book value per share of common stock is the amount per share of common stock that would be received if all of the firm's assets were sold for their accounting value and the proceeds remaining were divided among common stockholders.

________ is the actual amount each common stockholder would expect to receive if the firm's assets are sold, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.

The advantages of issuing preferred stock from the common stockholder's perspective include all of the following EXCEPT

Corporate venture capital funds are subsidiaries of financial institutions, particularly banks, set up to help young firms grow and, it is hoped, become major customers of the institutions.

In an efficient market, the expected return and the required return are equal.

In an efficient market, stock prices adjust quickly to new public information.

Key differences between common stock and bonds include all of the following EXCEPT

Common stockholders are often referred to as residual claimants.

________ is hired by a firm to find prospective buyers for its new stock or bond issue.

Preferred stockholders

A preferred stockholder is sometimes referred to as a residual owner, since in essence he or she receives what is left the residual after all other claims on the firm's income and assets have been satisfied.

Small business investment companies (SBICs) are corporations chartered by the federal government that can borrow at attractive rates from the U.S. Treasury and use the funds to make venture capital investments in private companies.

Efficient market hypothesis is the theory describing the behavior of an assumed "perfect" market in which securities are typically in equilibrium, security prices fully reflect all public information available and react swiftly to new information, and, because stocks are fairly priced, investors need not waste time looking for mispriced securities.

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 return is 8 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be

A proxy statement gives the shareholder the right