Chapter 8 Concepts - FIN 357

Which of the following entities declares a dividend?

The board of directors

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

- Capital gains - Dividends

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.

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

When the stock being valued does not pay dividends,

the dividend growth model can still be used.

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

Dividends may grow at a constant rate.

The formula for valuing a constant growth stock is _____.

P0 = D1/(R − g)

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

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

staggered

Which of the following are features of common stock?

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

Three special case patterns of dividend growth include

-constant growth -zero growth -non-constant growth

What information do we need to determine the value of stock using the zero-growth model?

- Discount rate - Annual dividend amount

NASDAQ has which of these features?

- Multiple market maker system. - Computer network of securities dealers.

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

- The rate of return required by the market is not easily observed. - The life of a common stock is essentially forever. - Common stock cash flows are not known in advance

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 - Cumulative voting means that each shareholder may distribute votes however he or she wishes. If there are four seats on the board and the shareholder owns 20 shares, he or she can cast 80 votes for one board member.

For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed.

False - Neither dividends nor capital gains are fixed or guaranteed.

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

broker

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

preferred

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

Dividends/Discount rate

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

constant dividend amount

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

internet

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

more

A benchmark PE ratio can be determined using:

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

An NYSE member who executes customer buy and sell orders is called a __________ broker.

floor

Initial public offerings of stock occur in the ____ market. Multiple choice question.

primary

The trading of existing shares occurs in the ______ market.

secondary

Preferred stock has preference over common stock in the _____.

- distribution of corporate assets - payment of dividends

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