Chapter 9

The constant growth dividend model would be useful to determine the value of all, but which of the following firms?

A firm whose expected sales, profits, and dividends are fluctuating.

Which of the following statements is NOT true about broker markets?

Brokers can guarantee an order because they have an inventory of securities.

Which of the following are the three simplifying assumptions that cover most stock growth patterns?

Dividends remain constant over time, dividends grow at a constant rate, and dividends have a mixed growth pattern.

The constant growth dividend model cannot be applied to value the stock of a company whose dividends are declining at a constant rate.

False

The reason we cannot apply the constant growth dividend model in the case where the growth rate, g, is greater than or equal to the required rate, R, is because it would result in the value of the stock becoming:

Negative

Which of the following statements is NOT true about common stock?

Owners of common stock are guaranteed dividend payments by the firm.

Which of the following statements is NOT true about preferred stock?

Preferred stockholders are not guaranteed dividend payments by the firm.

Which of the following statements is NOT true about constant-growth stocks?

The cash dividend remains constant over time.

The stocks owned by ___ represent about 35 percent of the total value of all corporate equity.

households

Growth stocks usually do not pay dividends. Therefore the stock value increases because the firms:

reinvests earnings to provide dividends in the future.

Owners of preferred stock:

1. have limited voting rights. 2. usually receive fixed dividend payments. 3. are given priority treatment over common stock with respect to dividends payments, and the claims against the firm's assets in the event of bankruptcy or liquidation.

Which of the following statements is NOT true about zero-growth stocks?

The dividend pattern grows over time.

Which of the following is the most typical example of a zero-growth dividend stock?

The preferred stock of a utility company.

The value of a firm's equity is calculated as the sum of the present value of all expected future cash flows.

True

Preferred stock is sometimes considered to be a special type of debt rather than equity because

preferred stockholders receive a fixed dividend

Direct search markets are characterized by:

private placement transactions and sale of common stock of small private companies.

The constant-growth dividend model will provide invalid solutions when:

the growth rate of the stock exceeds the required rate of return for the stock.