Financial Mgt FINAL

Common stockholders have:

"voting rights" and "preemptive rights if outlined in the company charter" only

The price of a share of stock today is $50.00, and the projected selling price in one year is $55.00. The estimated dividend during the year is $1.00. The expected return on the stock is:

12%

Zero-Sum Enterprise expects to pay an annual dividend of $0.48 next year. Dividends and earnings have been growing at a compound annual rate of 8 percent and are expected to continue growing at that rate. What is the return on Zero-Sum if its price is $12

12%

A share of Jones Inc. preferred stock pays a dividend of $1.25 each quarter. You are willing to pay $37.50 for this stock. Your annual return on the investment is:

13.3%

Zimmer's common stock sells for $37 and its dividend is expected to grow at a rate of 8 percent annually. What is the expected dividend (D1) if Zimmer is returning 16%

2.96

Camden Properties has recently paid a dividend of $1. Dividends are expected to grow at a constant rate of 5% thereafter. If the required rate of return is 9%, then what is the current value of the stock

26.25

The price of a share of stock today is $25.00. If the return on the share is estimated at 18% and the stock generally pays a dividend of $1 per year, what is its projected selling price in one year

28.50

Assume a dividend today of $2.50 with anticipated growth over the next three years of 10%. The estimated dividend at the third year is

3.33

You are considering buying stock and require a rate of return of 12%. If you expect the dividend to be $1.25 for years 1-3, $1.50 in year 4 and $1.75 in year 5 with an expected selling price at that time of $67, then what is the most you should pay today?

42.96

Toys-r-Cool Inc.'s constant growth stock's last dividend was $1.50. It is selling for $30.20 in a market in which similar stocks return 12%. Calculate the stock's anticipated growth rate.

6.7%

Alpha issued a 6% preferred stock 15 years ago (par value $100). What is it selling for today if the relevant rate of return is now 9%

66.67

What is the rate of return on a preferred stock that has a par value of $50, a market price of $46.50, and a dividend of $4.10

8.82%

Total return for a constant growth stock consists of

Both "capital gains yield" & "dividend Yield".

Common stockholders

Both "have a residual claim on both income and assets" & "are last in line in the event of bankruptcy".

A security's value is equal to the future value of its past cash flows

FALSE

Holding all other variables constant, an increase in the market return will increase the value of a constant growth stock

False

Most equity investors are interested in a role as owner.

False

Preferred stock is often referred as a hybrid security having characteristics of both common stock and bonds.

TRUE

Which of the following is true of the underwriting of IPOs performed by investment banks?

The investment bank commits to buy stock from the issuing company at a fixed price.

Warrants

are contracts that give the owner a temporary right to buy an asset from the issuing firm at a fixed price

Total return for preferred stock consists of:

capital gains yield and dividend yield.

If three seats on the board of directors are up for election, cumulative voting on common stock allow stockholders to:

cast up to three votes per share owned for any one candidate.

Which class of investors do not have claims on the income and assets of the firm prior to preferred shareholders?

common stock holders

It is important to acknowledge that growth or dividend pricing Models are essentially abstractions of reality and hence have serious practical limitations. The issues relating to accuracy include:

estimates of growth rates.,estimates of the market rate of interest., the fact that the denominator in the Gordon model is the difference between two numbers that can be close

A widely held company is usually owned by many stockholders, some of which have significant levels of ownership.

false

If a stock's present dividend is $2.0 and it is expected to grow at a constant annual rate f 6% with a market return of 12%, the selling price of the stock today is $33.33

false

Preferred stock is designed to attract investors who want less risk and assured voting rights

false

Scholars almost universally support technical analysis because it uses detailed statistical analysis to make predictions.

false

The principal purpose of most investors when buying stock is to participate in the control of the company.

false

The purpose of preemptive rights is to allow common stockholders to buy new shares at a lower price than currently offered on the open market.

false

The technical analyst forecasts a company's cash flows to arrive at value. The fundamental analyst relies on past price patterns repeating themselves

false

With respect to valuation, stocks and bonds are dissimilar in that:

periodic bond interest payments form an annuity while dividends are unlikely to be constant, bond cash flows are known precisely while stock cash flows are estimates, bond cash flows are contractual commitments, stock cash flows are not.

All of the following are characteristics of preferred stock that make it similar to bonds except

periodic payment is tax deductible to the paying company.

The IPO Pop is a phenomenon in which

there is a rapid increase in the stock price after trading begins.

A prospectus may contain a price range for the IPO stock and not the exact offering price.

true

A stock's total return is realized from two principal sources, its dividend yield and any gain from the increase in its selling price over the original purchase price of the stock.

true

Companies that anticipate high growth in their early years are likely to retain earnings to finance that growth rather than pay dividends and then borrow or issue stock to support the growth.

true

Fundamental analysis attempts to develop an intrinsic value for a stock that is then compared with its current price.

true

Holding all other variables constant, as the return on a preferred stock increases, the value of the stock decreases.

true

In a secondary equity offering, the market value of the old shares determines the price of the new shares

true

One reason that investors may assign a different value to a stock is due to differences in the appropriate discount rate to use in solving for present values

true

Ownership of 51% of a company's outstanding stock guarantees control. But as practical matter holding as little as 15% to 25% of a widely held company results in effective control.

true

Stocks that don't pay dividends have value based on the expectation that dividends will eventually will be paid.

true

The dividend yield is the annual dividend divided by the current stock's price

true

The efficient market hypothesis asserts that because of quick and efficient dissemination of information, the prices of stocks reflect all publicly available information.

true

The expected return reflects investors' knowledge of a company that is input to the Gordon model through the growth rate assumption.

true

The future cash flows associated with stock ownership consists of dividends and price appreciation.

true

The return on any stock investment is the rate that makes the present value of estimated future cash flows equal to the price paid for the stock today

true

Employee stock options are more similar to

warrants

Rights that allow stockholders to maintain their proportionate ownership of a corporation are called:

✔ preemptive rights.