FIN 357 Chapter 8: Stock Valuation

When voting for the board of directors, the number of votes a shareholder is entitled to is usually _____ vote per share held.

one

When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows:

one vote per share held

Preferred stock has preference over common stock in the _____.

payment of dividends distribution of corporate assets

A stock with dividend priority over common stock is called a ______ stock.

preferred

Initial public offerings of stock occur in the ____ market.

primary

The trading of existing shares occurs in the ______ market.

secondary

The NYSE member who acts as a dealer in a small number of securities is called a(n) _____.

specialist

In a ______ board, only a fraction of the directorships are up for election at any one time.

staggered

With ______ voting, the directors are elected one at a time and the only way to guarantee a seat is to own 50 percent plus one share.

straight

Investment firms that are active participants in stocks assigned to them are called ______ liquidity providers.

supplemental

When the stock being valued does not pay dividends,

the dividend growth model can still be used. -Analysts assume, at some point in future, the firm will pay dividends.

Which of the following entities declares a dividend?

board of directors

Suppose Bob owns 20 shares and Vikki owns 30 shares in Good Company, and there are five members of the board of directors. Under which voting arrangement can Bob assure himself of a board member that represents his interests?

Cumulative voting: Bob's votes = 20*5 = 100 Vikki's votes = 30*5 = 150 = no way to distribute all votes over five candidates so that she has more than 100

Which one of the following is true about dividend growth patterns?

Dividends may grow at a constant rate or differential rate, but not always either/or

NASDAQ has which of these features?

Multiple market maker system Computer network of securities dealers

WinWin Corporation has five board members, and each shareholder gets one vote per share. The company uses a straight board voting procedure. How does this arrangement affect minority shareholders?

No minority shareholder would have enough votes to win any seat on the board

A share of common stock is (less/more) difficult to value in practice than a bond.

more

Which of the following are reasons why it is more difficult to value common stock than it is to value bonds?

-Common stock cash flows are not known in advance -Rate of return required by market is not easily observed -Life of common stock is essentially forever

A benchmark PE ratio can be determined using:

-a company's own historical PEs -the PEs of similar companies

Which of the following are features of common stock?

-generally has voting rights -has no special preference in receiving dividends or in bankruptcy

Which of the following are expected cash flows to investors in stocks?

Dividends Capital gains

Which of the following represents the valuation of stock using a zero-growth model?

Dividends / discount rate

True or false: Cumulative voting means board members are elected one at a time, with each shareholder casting his or her allotted votes for each seat on the board.

False: each shareholder may distribute votes however he/she wishes but distribution may be allotted toward all one board member

The formula for valuing a constant growth stock is _____.

P0 = D1/(R − g)

Three special case patterns of dividend growth include _____.

Zero growth Nonconstant growth Constant growth

A zero-growth model for stock valuation is distinguished by a ____.

constant dividend amount

Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____.

dealer

An NYSE member who acts as a dealer in particular stocks is called a ______ market maker.

designated

A _______ is a payment by a corporation to shareholders, made in either cash or stock.

dividend

Common stock as no special preference either in receiving _______ or in bankruptcy.

dividends

The assumption of constant growth infers that _________.

dividends change at a constant rate

A person who brings buyers and sellers together is called a(n) ______.

broker

Stock price reporting has increasingly moved from traditional print media to the ______ in recent years.

internet

Mota Motors has eight directors on its board, two of whom go up for election each year. This is an example of a:

staggered board