Exam 2 - Chapter 9 Stocks and their Valuation
A stock is expected to pay a dividend of $0.75 at the end of the year. The required rate of return is rs = 10.5%, and the expected constant growth rate is g = 8.2%. What is the stock's current price? a. $27.07 b. $32.61 c. $38.80 d. $29.02 e. $27.39
(.75)/(.105-.082)=32.61 b. $32.61
Growth rate
(1-payout ratio)*ROE
EVA
(Equity capital)(ROE-cost of equity capital)
Market value of equity
Book value + PV of all future EVAs
P^0
D/Rs
Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.70, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price? a. $7.40 b. $10.52 c. $7.70 d. $7.89 e. $9.74
D0 = $0.75 per share b = 1.70 rRF = 4.50% rM = 10.50% g = 6.50% D1 = D0(1 + g) = $0.75(1 + 0.065) = $0.79875 rs = rRF + b(rM - RRF) = 4.50% + 1.70(10.50% - 4.50%) = 14.70% P0 = D1 / (rs- g) = $0.79875 / (0.1470 - 0.0650) = $9.74 e. $9.74
The Francis Company is expected to pay a dividend of D1 = $1.25 per share at the end of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future. The company's beta is 1.70, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price? a. $12.93 b. $14.80 c. $13.44 d. $18.03 e. $17.01
Dividend expected to pay/(required rate of return-growth rate) 1.25/(required rate of return-.06) Required rate of return = risk free rate +beta * market risk premium Required = .04+(1.7 * .055) =.1335 or 13.55% 1.25/(.1335-.06)=17.01 e. $17.01
expected rate of return
Expected dividend yield + Expected growth rate (or capital gains yield)
A preemptive right gives stockholders the right to call for a meeting to vote to replace the management. Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight. a. True b. False
False
An investor using the DCF stock valuation model would assign a value based on the length of time he or she plans to hold the stock. a. True b. False
False
If a firm goes bankrupt and must be liquidated, and if less money is available than the balance sheet values of bonds, preferred stock, and common equity, then some security holders will receive less than the book values of their investments. The priority system under our bankruptcy laws allocates funds first to preferred stock because of its preference, then to bonds, and then to common stockholders (only if there are funds left over after paying preferred stockholders and bondholders). True or false? a. True b. False
False
To find the total return on a share of stock, find the dividend yield and subtract any commissions paid when the stock is purchased and sold. a. True b. False
False
Mooradian Corporation's free cash flow during the just-ended year (t = 0) was $250 million, and its FCF is expected to grow at a constant rate of 5.0% in the future. If the weighted average cost of capital is 12.5%, what is the firm's total corporate value, in millions? a. $3,500 b. $4,130 c. $3,255 d. $2,695 e. $3,850
Firm Total Corporate Value =Free cash flow (T1) / Ke - G = 250( 1+0.05)/12.5%-5% = 3500 million a. $3,500
Hidden Technologies Inc. (HTI) is expected to generate $75 million in free cash flow next year, and it is expected to grow at a constant rate of 6% per year. The firm has no debt or preferred stock and has a WACC of 9%. HTI has 50 million shares of stock outstanding. Using the corporate valuation model, what is the value of the company's stock per share? a. $43.33 b. $55.25 c. $50.00 d. $45.75 e. $40.00
Firm value = FCF1/(WACC-g) =75,000,000/(.9-.06) =2,500,000,000 Equity per share = Equity value/Shares outstanding =2,500,000,000/50,000,000 =50 c. $50.00
A stock is expected to pay a dividend of $2.25 at the end of the year (D1 = $2.25). The dividend is expected to grow at a constant rate of 4% a year. The stock has a required return of 11%. What is the expected price of the stock five years from today? a. $32.14 b. $42.00 c. $40.25 d. $39.11 e. $36.67
First solve for current price P0 = D1/(Rs-g) =2.25/(.11-.04) =32.14 P5=P0(1+g)^5 =32.14(1.04)^5 =39.11 d. $39.11
Misra Inc. forecasts a free cash flow of $55 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5.5% thereafter. If the weighted average cost of capital (WACC) is 10.0% and the cost of equity is 15.0%, what is the horizon, or continuing, value in millions at t = 3? a. $1,212 b. $1,083 c. $1,186 d. $1,148 e. $1,289
Horizon value=(FCF3*Growth Rate)/(WACC-Growth Rate) =(55*1.055)/(0.1-0.055)=1,289 e. $1,289
Hanebury Manufacturing Company (HMC) has preferred stock outstanding with a par value of $50. The stock pays a quarterly dividend of $1.25 and has a current price of $71.43. What is the nominal annual rate of return on the preferred stock? a. 7.00% b. 10.50% c. 8.75% d. 8.33% e. 9.25%
Nominal annual rate of return = $5.00/$71.43 = 7% Periodic rate of return = $1.25/$71.43 = 1.75% Nominal annual rate of return = 1.75% x 4 = 7% a. 7.00%
Hanebury Manufacturing Company (HMC) has preferred stock outstanding with a par value of $50. The stock pays a quarterly dividend of $1.25 and has a current price of $71.43. What is the effective annual rate of return on the preferred stock? a. 9.55% b. 10.68% c. 7.19% d. 8.67% e. 8.24%
Nominal annual rate of return = INOM = (4 x $1.25)/$71.43 = 7% EAR = (1 + INOM/4)4 - 1 = (1 + 0.07/4)4 - 1 = (1.0175)4 - 1 = 1.0719 - 1 = 0.0719 = 7.19% c. 7.19%
The Canning Company has been hard hit by increased competition. Analysts predict that earnings (and dividends) will decline at a rate of 5% annually into the foreseeable future. If Canning's last dividend (D0) was $2.00, and investors' required rate of return is 15%, what will be Canning's stock price in 3 years? a. $10.00 b. $ 8.15 c. $10.96 d. $10.42 e. $ 9.50
P3 = P0(1+g)^3 =9.5(.8574)=8.15 b. $ 8.15
Next year's earnings
Prior earnings +ROE (retained earnings)
Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return? a. 8.89% b. 8.03% c. 8.67% d. 8.24% e. 8.45%
Quarterly Dividend = 1 Annual Divided = Q * 4 = 4 Preferred stock price = 45 Nominal required return = annual dividend/Price= 8.89 a. 8.89%
Goode Inc.'s stock has a required rate of return of 11.50%, and it sells for $29.00 per share. Goode's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0? a. $1.22 b. $1.37 c. $0.95 d. $1.38 e. $1.06
Required rate of return=(Dividend next year/current stock price)+growth rate 0.115=(Dividend next year/29)+0.07 hence dividend next period=(0.115-0.07)*29=$1.305 Hence dividend next period=last dividend*(1+growth rate) 1.305=last dividend*1.07 Hence last dividend=(1.305/1.07)=$1.22 a. $1.22
Lucas Laboratories' last dividend was $1.50. Its current equilibrium stock price is $15.75, and its expected growth rate is a constant 5%. If the stockholders' required rate of return is 15%, what is the expected dividend yield and expected capital gains yield for the coming year? a. 15%; 0% b. 5%; 10% c. 10%; 5% d. 0%; 15% e. 15%; 15%
The dividend yield is D(1+g)/P = $1.50(1.05)/$15.75 = 10%. The capital gains yield is (P(1+g) - P)/P = ($16.5375 - $15.75)/$15.75 = g = 5%. c. 10%; 5%
Stability Inc. has maintained a dividend rate of $4 per share for many years. The same rate is expected to be paid in future years. If investors require a 12% rate of return on similar investments, determine the present value of the company's stock. a. $40.00 b. $33.33 c. $30.00 d. $35.00 e. $15.00
This is a zero growth stock, or perpetuity: P0= D/rs = $4.00/0.12 = $33.33. b. $33.33
Based on the corporate valuation model, Gray Entertainment's total corporate value is $1,150 million. The company's balance sheet shows $120 million of notes payable, $300 million of long-term debt, $50 million of preferred stock, $180 million of retained earnings, and $800 million of total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of its price per share? a. $22.44 b. $26.07 c. $17.68 d. $18.81 e. $22.67
Total Enterprise Value = Market Value of Equity + Market Value of Debt Market Value of equity = 1150 - 120 - 300 - 50 = 680 million Stock Price = 680 / 30 = $22.67 e. $22.67
You have been assigned the task of using the corporate, or free cash flow, model to estimate Petry Corporation's intrinsic value. The firm's WACC is 10.00%, its end-of-year free cash flow (FCF1) is expected to be $75.0 million, the FCFs are expected to grow at a constant rate of 5.00% a year in the future, the company has $200 million of long-term debt and preferred stock, and it has 30 million shares of common stock outstanding. What is the firm's estimated intrinsic value per share of common stock? a. $41.82 b. $46.42 c. $43.33 d. $44.85 e. $40.35
Total firm value = FCF1/(WACC-g) Total firm value = 75/(.1-.05) = 1500 Value of debt and preferred = 200 Value of equity = 1500 - 200 = 1300 Shares outstanding = 30 Value per share = 1300/30=43.33 c. $43.33
A document that gives one party the authority to act for another party is a proxy. This includes the power to vote shares of common stock. Proxies can be important tools relating to control of firms. a. True b. False
True
A stock's price is simply the current market price, and it is easily observed for publicly traded companies. By contrast, intrinsic value, which represents the "true" value of the company's stock, cannot be directly observed and must instead be estimated. True or false? a. True b. False
True
Because stock has a residual claim rather than a contractual obligation, the cash flows associated with common stock are more difficult to estimate than those related to bonds. a. True b. False
True
Classified stock is the differentiation of different shares of common stock. It gives companies a way to meet special needs such as when owners of a start-up firm need additional equity capital but do not want to relinquish voting control. a. True b. False
True
Firms can use different classes of common stock to meet specific needs of the company. Founders' shares are one such class. They are shares owned by the firm's founders that enable them to maintain control over the company without having to own a majority of stock. True or false? a. True b. False
True
Founders' shares are a type of classified stock where the shares are owned by the firm's founders, and they generally have more votes per share than the other classes of common stock. a. True b. False
True
In order to prevent dilution of control or dilution of value, shareholders use preemptive rights to purchase, on a pro rata basis, any new shares issued by the firm. a. True b. False
True
Preferred stock is a "hybrid" security. Preferreds typically pay a fixed dividend, so they are a fixed-income security like a bond. However, the directors can omit the preferred dividend without throwing the company into bankruptcy. True or false? a. True b. False
True
Proxy fights are attempts by a person or group that wants to take over control of a firm by getting the firms' stockholders to give their voting proxies to the new group. True or false? a. True b. False
True
The marginal investor determines the price at which a new issue of stock will trade when it is brought to market. a. True b. False
True
The preemptive right is the right of current stockholders to buy new shares in an amount that will maintain their proportionate ownership in the firm. True or false? a. True b. False
True
The type of classified stock where the shares are owned by the firm's founders is called founder's shares. With founders' shares, shareholders generally have more votes per share than with other classes of common stock. a. True b. False
True
The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of two elements: (1) the dividends the investor receives each year while he or she holds the stock and (2) the price received when the stock is sold. The final price includes the original price paid plus an expected capital gain. True or false? a. True b. False
True
The value of a share of stock can be estimated by using the PV of future dividends. An alternative valuation procedure, called the "corporate valuation model," calls for finding the expected future free cash flows, discounting those cash flows at the weighted average cost of capital, summing the PVs of the free cash flows, subtracting the market values of debt and preferred to calculate the value of the common equity, and then dividing by the number of shares outstanding to find the value of a share of common stock. In theory, the two methods should produce the same stock price. Is this statement true or false? a. True b. False
True
To estimate the value of a nonconstant growth stock, we can estimate the value of each dividend during the period of nonconstant growth, find the PVs of these dividends, find the value of the stock at the horizon date, find the PV of the horizon value, and then sum these PVs to find the value of the stock today. True or false? a. True b. False
True
To find the firm's total corporate value, discount projected free cash flows at the firm's weighted average cost of capital. a. True b. False
True
Based on the corporate valuation model, Morgan Inc.'s total corporate value is $300 million. The balance sheet shows $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of the stock's price per share? a. $12.64 b. $14.00 c. $14.70 d. $12.00 e. $13.30
Value of equity = 300 - (90+30+40) = 140 Shares outstanding = 10 140/10 = 14 b. $14.00
Emerging Technologies Inc.'s total corporate value is $300 million according to the corporate valuation model. The balance sheet shows $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of Emerging Technologies Inc. stock's price per share? a. $14.70 b. $13.30 c. $14.00 d. $12.00 e. $12.64
Value of equity = 300 - (90+30+40) = 140 Shares outstanding = 10 140/10 = 14 b. $14.00
Some investors expect Endicott Industries to have an irregular dividend pattern for several years, and then to grow at a constant rate. Suppose Endicott has D0 = $2.00; no growth is expected for 2 years; then the expected growth rate is 8% for 2 years; and finally the growth rate is expected to be constant at 15% thereafter. If the required return is 20%, what will be the value of the stock? a. $31.31 b. $23.84 c. $28.53 d. $21.24 e. $25.14
a. $31.31
Which of the following statements is NOT CORRECT? a. The capital gains yield is calculated as the dollar amount of the year's dividend payments divided by the current stock price. b. The dividend yield is the percentage of how much of the stock's return is received as dividends. c. The capital gains yield is the annual percentage of a stock's change in price. d. The total return is equal to the dividend yield plus the capital gains yield. e. The dividend yield, the capital gains yield, and the total return are three key components of the Discounted Dividend Model.
a. The capital gains yield is calculated as the dollar amount of the year's dividend payments divided by the current stock price.
Calvert Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Calvert doesn't pay any dividends and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Calvert's stock. The pension fund manager has estimated Calvert's free cash flows for the next 3 years as follows: $1.2 million, $2.5 million, and $4.1 million. After the third year, free cash flow is projected to grow at a constant 5%. Calvert's WACC is 10%, the market value of its debt and preferred stock totals $10.9256 million, and it has 2.5 million shares of common stock outstanding. What is an estimate of Calvert's price per share? a. $30.07 b. $24.00 c. $20.25 d. $28.37 e. $17.50
b. $24.00
Today is December 31, 2013. The following information applies to Harrison Corporation: After-tax operating income [EBIT(1 - T)] for 2014 is expected to be $950 million. The company's depreciation expense for 2014 is expected to be $190 million. The company's capital expenditures for 2014 are expected to be $380 million. No change is expected in the company's net operating working capital. The company's free cash flow is expected to grow at a constant rate of 4% per year. The company's cost of equity is 13%. The company's WACC is 9%. The market value of the company's debt is $5.2 billion. The company has no preferred stock. The company has 250 million shares of stock outstanding. Using the corporate valuation model, what should be the company's stock price today? a. $52.50 b. $43.50 c. $35.00 d. $40.00 e. $37.50
b. $43.50
Silva Motors just paid a dividend of $2.00, i.e., D0 = $2.00. The dividend is expected to grow by 100% during Year 1, by 50% during Year 2, and then at a constant rate of 5% thereafter. If Silva's required rate of return is rs = 12%, what is the value of the stock today? a. $74.24 b. $80.10 c. $78.20 d. $82.36 e. $76.15
b. $80.10
Investors expect Bae Corporation to pay a dividend of D1 = $1.50 and to grow at a constant rate of 7% per year. The stock sells at a price of $25. What is Bae's expected capital gains yield? a. 4.0% b. 7.0% c. 5.0% d. 8.0% e. 6.0%
b. 7.0%
Which of the following statements is NOT CORRECT? a. The discount rate, or required rate of return, used in the discounted dividend model reduces the values of future dividend payments to calculate their present values—which are used in arriving at the value of the stock price today. b. For the discounted dividend model, you need to know the firm's dividend payments, the dividend growth rate, and the discount rate, or required rate of return. In addition, the model assumes that the firm will only be around for a finite period. The model cannot handle the assumption that there are an infinite number of dividend payments. c. The discounted dividend model deals with a fundamental question in finance—the value or worth of a stock. d. The discounted dividend model calculates what the value of the stock price today should be, so we can then compare that value to the stock's current market price to determine whether to purchase, sell, or hold the stock. e. To arrive at an estimate of the growth rate used in the discounted dividend model that determines how much dividends are expected to change each year, one looks at the company's history and likely future performance.
b. For the discounted dividend model, you need to know the firm's dividend payments, the dividend growth rate, and the discount rate, or required rate of return. In addition, the model assumes that the firm will only be around for a finite period. The model cannot handle the assumption that there are an infinite number of dividend payments.
The Club Auto Parts Company has just recently been organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, Club will grow at an annual rate of 5% in the third year and, beginning with the fourth year, should attain a 10% growth rate that it will sustain thereafter. The first dividend (D1) to be paid at the end of the first year is expected to be $0.50 per share. Investors require a 15% rate of return on Club's stock. What is the current equilibrium stock price? a. $15.00 b. $ 9.56 c. $ 8.75 d. $ 5.00 e. $12.43
c. $ 8.75
The Club Auto Parts Company has just recently been organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, Club will grow at an annual rate of 5% in the third year and, beginning with the fourth year, should attain a 10% growth rate that it will sustain thereafter. The first dividend (D1) to be paid at the end of the first year is expected to be $0.50 per share. Investors require a 15% rate of return on Club's stock. What will Club's stock price be at the end of the first year ()? a. $ 8.75 b. $ 5.00 c. $ 9.57 d. $12.43 e. $15.00
c. $ 9.57
When stockholders assign their right to vote to another party, this is called a. A privilege. b. A preemptive right. c. A proxy. d. An ex right. e. A takeover.
c. A proxy.
Which of the following statements is CORRECT? a. The realized rate of return is denoted simply as a lower-case r. It represents a statistical calculation of what will happen with the stock's future return. b. The required rate of return is denoted simply as a lower-case r with a straight line on top. This rate of return doesn't represent speculation about a stock's future return but represents the actual return you receive from the stock. c. The required return represents the return an investor requires to invest in the stock; the expected return is based on a statistical calculation of what will happen with the future value of the stock; and the realized rate of return is the actual, historic return earned on the stock. d. The actual values of the expected rate of return, the required rate of return, and the realized rate of return must be identical for financial markets to operate. e. None of the statements above are correct.
c. The required return represents the return an investor requires to invest in the stock; the expected return is based on a statistical calculation of what will happen with the future value of the stock; and the realized rate of return is the actual, historic return earned on the stock.
Chadmark Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Chadmark to begin paying dividends, with the first dividend of $0.75 coming 2 years from today. The dividend should grow rapidly, at a rate of 40% per year, during Years 3 and 4. After Year 4, the company should grow at a constant rate of 10% per year. If the required return on the stock is 16%, what is the value of the stock today? a. $18.87 b. $16.05 c. $15.78 d. $16.93 e. $17.54
d. $16.93
Vara Technologies' is expected to pay a dividend of $2.00 per share one year from today. Vara's required rate of return is rs = 11%. What would Vara's price be if the expected growth rate were g = 0%? a. $16.43 b. $16.85 c. $17.28 d. $18.18 e. $17.73
d. $18.18
Helen's Pottery Co.'s stock recently paid a $1.50 dividend (D0 = $1.50). This dividend is expected to grow by 15% for the next 3 years, and then grow forever at a constant rate, g. The current stock price is $40.92. If rs = 10%, at what constant rate is the stock expected to grow following Year 3? a. 4.25% b. 3.33% c. 6.50% d. 5.00% e. 5.67%
d. 5.00%
Investors expect Bae Corporation to pay a dividend of D1 = $1.50 and to grow at a constant rate of 7% per year. The stock sells at a price of $25. What is Bae's expected dividend yield? a. 5.0% b. 8.0% c. 4.0% d. 6.0% e. 7.0%
d. 6.0%
If markets are in equilibrium, which of the following conditions will exist? a. The expected and required returns on stocks and bonds should be equal. b. Each stock's expected return should equal its realized return as seen by the marginal investor. c. All stocks should have the same expected return as seen by the marginal investor. d. Each stock's expected return should equal its required return as seen by the marginal investor. e. All stocks should have the same realized return during the coming year.
d. Each stock's expected return should equal its required return as seen by the marginal investor.
Assume that a company's dividends are expected to grow at a rate of 25% per year for 5 years and then to slow down and to grow at a constant rate of 5% thereafter. The required (and expected) total return, rs, is expected to remain constant at 12%. Which of the following statements is correct? a. The stock price will grow at a different rate each year during the first 5 years, but its average growth rate over this period will be the same as the average growth rate in dividends; that is, the average stock price growth rate will be (25% + 5%)/2. b. The stock price will grow each year at the same rate as the dividends. c. Because the growth rate is 25% in the first 5 years, the stock's realized return will always be greater than the stock's required return. d. Right now, it would be easier (require fewer calculations) to find the dividend yield expected in Year 7 than the dividend yield expected in Year 3. e. The dividend yield will be higher in the early years and then will decline as the annual capital gains yield gets larger and larger, other things held constant.
d. Right now, it would be easier (require fewer calculations) to find the dividend yield expected in Year 7 than the dividend yield expected in Year 3.
Vara Technologies' is expected to pay a dividend of $2.00 per share one year from today. Vara's required rate of return is rs = 11%. If the expected growth rate is 5%, at what price should the stock sell? a. $35.02 b. $36.79 c. $35.89 d. $34.16 e. $33.33
e. $33.33
Investors expect Bae Corporation to pay a dividend of D1 = $1.50 and to grow at a constant rate of 7% per year. The stock sells at a price of $25. What is Bae's expected total rate of return? a. 11.0% b. 12.0% c. 10.0% d. 14.0% e. 13.0%
e. 13.0%
Your sister-in-law, a stockbroker at Invest Inc., is trying to sell you a stock with a current market price of $25. The stock's last dividend (D0) was $2.00, and earnings and dividends are expected to increase at a constant growth rate of 10%. Your required return on this stock is 20%. From a strict valuation standpoint, you should: a. Buy the stock; it is undervalued by $2.00. b. Buy the stock; it is fairly valued. c. Not buy the stock; it is overvalued by $2.00. d. Buy the stock; it is undervalued by $3.00. e. Not buy the stock; it is overvalued by $3.00.
e. Not buy the stock; it is overvalued by $3.00.
Which of the following statements is CORRECT? a. The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock. b. A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights. c. One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer. d. One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free. e. Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
e. Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
The preemptive right is important to shareholders because it: a. Will result in higher dividends per share. b. Allows managers to buy additional shares below the current market price. c. Is included in every corporate charter. d. Enables the firm to issue debt with a relatively low interest rate because the bondholders are protected. e. Protects the current shareholders against a dilution of their ownership interests.
e. Protects the current shareholders against a dilution of their ownership interests.
Which of the following statements about stock classes is CORRECT? a. All common stocks fall into one of three classes: A, B, and C. b. All firms have several classes of common stock. c. All common stocks, regardless of class, must pay the same dividend. d. All common stocks, regardless of class, must have the same voting rights. e. Some classes of common stock are entitled to more votes per share than other classes.
e. Some classes of common stock are entitled to more votes per share than other classes.
