Exam 7: Stock Valuation

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

A prospectus is a portion of the security registration statement that describes the key aspects of the issue, the issuer, and its management and financial position.

________ 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.

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?

Unlike creditors, equity holders are owners of the firm.

All of the following are characteristics of common stock EXCEPT

An underwritten issue of common stock is one in which the firm purchases insurance to cover unexpected losses suffered by shareholders.

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.

Stock rights provide the stockholder with

Equity capital can be raised through

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 ________ is utilized to value preferred stock.

A prospectus is another term for a firm's annual report showing the firm's prospects for the coming year.

Tina's Medical Equipment Company paid $2.25 common stock dividend last year. The company's policy is to allow its dividend to grow at 5 percent per year indefinitely. What is the value of the stock if the required rate of return is 8 percent?

Cumulative preferred stocks are preferred stocks for which all passed (unpaid) dividends in arrears must be paid along with the current dividend prior to the payment of dividends to common stockholders.

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?

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. If Tangshan could sell its assets for $52.5 million, Tangshan's liquidation value per share of common stock is ________.

Although preferred stock provides added financial leverage in much the same way as bonds, it differs from bonds in that the issuer can pass a dividend payment without suffering the consequences that result when an interest payment is missed on a bond.

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.

Like bonds, the par value on a common stock is used as a basis for determining its fixed dividend.