Question 1

Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, dividends are subject to a maximum tax rate of 20 percent.

Accepted Answer

A) True 
 B)False

Question 2

Angel capitalists or angels are wealthy individual investors who do not operate as a business but invest in early-stage companies in exchange for a portion of equity.

Accepted Answer

A) True 
 B)False

Question 3

The ________ are sometimes referred to as the residual owners of the corporation.

Accepted Answer

A)  preferred stockholders 
B)  unsecured creditors 
C)  common stockholders 
D)  secured creditors 
A)  preferred stockholders 
B)  unsecured creditors 
C)  common stockholders 
D)  secured creditors

Question 4

The purpose of nonvoting common stock is to

Accepted Answer

A)  limit the voting power of the management. 
B)  allow the minority interest to elect one director. 
C)  raise capital without giving up any voting rights. 
D)  give preference on distribution of earnings to those shareholders who own the stock. 
A)  limit the voting power of the management. 
B)  allow the minority interest to elect one director. 
C)  raise capital without giving up any voting rights. 
D)  give preference on distribution of earnings to those shareholders who own the stock.

Question 5

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

Accepted Answer

A)  $ 8,000 
B)  $16,000 
C)  $24,000 
D)  $25,000 
A)  $ 8,000 
B)  $16,000 
C)  $24,000 
D)  $25,000

Question 6

A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on the firm's income and assets have been satisfied.

Accepted Answer

A) True 
 B)False

Question 7

Tangshan China Company's stock is currently selling for $80.00 per share. The expected dividend one year from now is $4.00 and the required return is 13 percent. What is Tangshan's dividend growth rate assuming that dividends are expected to grow at a constant rate forever?

Accepted Answer

A)  8% 
B)  9% 
C)  10% 
D)  11% 
A)  8% 
B)  9% 
C)  10% 
D)  11%

Question 8

Common stockholders expect to earn a return by receiving

Accepted Answer

A)  semiannual interest. 
B)  fixed periodic dividends. 
C)  dividends. 
D)  annual interest. 
A)  semiannual interest. 
B)  fixed periodic dividends. 
C)  dividends. 
D)  annual interest.

Question 9

Preferred stock is valued as if it were a

Accepted Answer

A)  fixed-income obligation. 
B)  bond. 
C)  perpetuity. 
D)  common stock. 
A)  fixed-income obligation. 
B)  bond. 
C)  perpetuity. 
D)  common stock.

Question 10

Table 7.1  
-Xiao Xin owns stock in a company which has paid the annual dividends shown in Table 7.1. Calculate the growth rate of these dividends.

Accepted Answer

(2.89/1.5)

Question 11

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

Accepted Answer

A) True 
 B)False

Question 12

If the expected return is above the required return on an asset, rational investors will

Accepted Answer

A)  buy the asset, which will drive the price up and cause expected return to reach the level of the required return. 
B)  sell the asset, which will drive the price down and cause the expected return to reach the level of the required return. 
C)  sell the asset, which will drive the price up and cause the expected return to reach the level of the required return. 
D)  sell the asset, since price is expected to decrease. 
A)  buy the asset, which will drive the price up and cause expected return to reach the level of the required return. 
B)  sell the asset, which will drive the price down and cause the expected return to reach the level of the required return. 
C)  sell the asset, which will drive the price up and cause the expected return to reach the level of the required return. 
D)  sell the asset, since price is expected to decrease.

Question 13

Which of the following is usually a right of a preferred stockholder?

Accepted Answer

A)  Right to convert shares to common stock on demand. 
B)  Preemptive right to participate in the issuance of new common shares. 
C)  Right to receive dividend payments before any dividends are paid to common stockholders. 
D)  Right to sue company in bankruptcy proceedings if promised preferred dividends are not paid. 
A)  Right to convert shares to common stock on demand. 
B)  Preemptive right to participate in the issuance of new common shares. 
C)  Right to receive dividend payments before any dividends are paid to common stockholders. 
D)  Right to sue company in bankruptcy proceedings if promised preferred dividends are not paid.

Question 14

Which of the following valuation methods is superior to the others in the list since it considers expected earnings?

Accepted Answer

A)  liquidation value 
B)  book value 
C)  P/E multiple 
D)  present value of the interest 
A)  liquidation value 
B)  book value 
C)  P/E multiple 
D)  present value of the interest

Question 15

Nico Custom Cycles' common stock currently pays no dividends. The company plans to begin paying dividends beginning 3 years from today. The first dividend will be $3.00 and dividends will grow at 5 percent per year thereafter. Given a required return of 15 percent, what would you pay for the stock today?

Accepted Answer

A)  $25.33 
B)  $18.73 
C)  $29.86 
D)  $20.72 
A)  $25.33 
B)  $18.73 
C)  $29.86 
D)  $20.72

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Because preferred stock is a form of ownership and has no maturity date, its claims on income and assets are secondary to those of the firm's creditors.

Accepted Answer

A) True 
 B)False

Question 18

Compute the value of a share of common stock of Lexi's Cookie Company whose most recent dividend was $2.50 and is expected to grow at 3 percent per year for the next 5 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10 percent required rate of return.

Accepted Answer

@#IMG-DLM& D6 = 2.90 (1 + 0.06

Question 19

Supervoting shares of common stock provide shareholders with ten times the voting power of ordinary shares of common stock.

Accepted Answer

A) True 
 B)False

Question 20

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

Accepted Answer

A)  Preferred stockholders 
B)  Common stockholders 
C)  Bondholders 
D)  Creditors 
A)  Preferred stockholders 
B)  Common stockholders 
C)  Bondholders 
D)  Creditors

Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, dividends are subject to a maximum tax rate of 20 percent.

Angel capitalists or angels are wealthy individual investors who do not operate as a business but invest in early-stage companies in exchange for a portion of equity.

The ________ are sometimes referred to as the residual owners of the corporation.

The purpose of nonvoting common stock is to

A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on the firm's income and assets have been satisfied.

Tangshan China Company's stock is currently selling for $80.00 per share. The expected dividend one year from now is $4.00 and the required return is 13 percent. What is Tangshan's dividend growth rate assuming that dividends are expected to grow at a constant rate forever?

Common stockholders expect to earn a return by receiving

Preferred stock is valued as if it were a

Table 7.1 -Xiao Xin owns stock in a company which has paid the annual dividends shown in Table 7.1. Calculate the growth rate of these dividends.

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

If the expected return is above the required return on an asset, rational investors will

Which of the following is usually a right of a preferred stockholder?

Which of the following valuation methods is superior to the others in the list since it considers expected earnings?

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

Because preferred stock is a form of ownership and has no maturity date, its claims on income and assets are secondary to those of the firm's creditors.

Supervoting shares of common stock provide shareholders with ten times the voting power of ordinary shares of common stock.

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

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

Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, dividends are subject to a maximum tax rate of 20 percent.

Angel capitalists or angels are wealthy individual investors who do not operate as a business but invest in early-stage companies in exchange for a portion of equity.

The ________ are sometimes referred to as the residual owners of the corporation.

The purpose of nonvoting common stock is to

A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on the firm's income and assets have been satisfied.

Tangshan China Company's stock is currently selling for $80.00 per share. The expected dividend one year from now is $4.00 and the required return is 13 percent. What is Tangshan's dividend growth rate assuming that dividends are expected to grow at a constant rate forever?

Common stockholders expect to earn a return by receiving

Preferred stock is valued as if it were a

Table 7.1 -Xiao Xin owns stock in a company which has paid the annual dividends shown in Table 7.1. Calculate the growth rate of these dividends.

Behavioral finance is a growing body of research that focuses on investor behavior and its impact on investment decisions and stock prices.

If the expected return is above the required return on an asset, rational investors will

Which of the following is usually a right of a preferred stockholder?

Which of the following valuation methods is superior to the others in the list since it considers expected earnings?

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

Because preferred stock is a form of ownership and has no maturity date, its claims on income and assets are secondary to those of the firm's creditors.

Supervoting shares of common stock provide shareholders with ten times the voting power of ordinary shares of common stock.

________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

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