Chapter 9 & 11 Multiple Choice Questions
Which of the following has a right to vote in the election of the board of directors of a company?
Common stockholders
Which one of the following markets is a type of secondary market for securities in the US?
Dealer
In which of the following types of security markets do sellers often rely primarily on word of mouth communication to find interested buyers?
Direct search
Which of the following is a characteristic of common stock?
Limited liability for owners
What is an example of the OTC market
NASDAQ
The reason we cannot apply the constant growth dividend model in the cash 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
For the constant growth rate dividend model to work, which of the following assumptions must hold?
The growth rate must be less than the required rate of return
Cash flows used for analyzing capital budgeting proposals differ from those included in the accounting statement of cash flows in which of the following ways?
They are forward looking, while accounting cash flows are historical
Which of the following is a major role of secondary markets
To provide good marketability for securities
The bid price is the price that a dealer pays for a security
True
The dealer's selling price of a given stock is also known as the ask price
True
The value of a firm's equity is calculated as the sum of the present value of all expected future cash flows
True
If a person finds a buyer for the 100 shares of a company he owns, this is
a direct search market transaction
deprecation expense ____
decrease taxable income and decreases taxes
cash flows over a project's life should include
depreciation expense
which of the following steps is necessary when computing the value of a common stock?
determining the required rate of return based on the riskiness of the cash flows
Which of the following is a simplyifing assumption that is made when applying the dividend discount model to common stock valuation?
dividend growth rate is not equal to the require rate of return
Growth stocks are defined as the stocks of companies whose
earnings are growing at above-average rates
Preferred stock is legally a form of debt of a corporation
false
The value of a share of stock depends on
how often it will pay a dividend
A project's salvage value is likely to be ignored in the
payback period technique
Preferred stock resembles a bond because
preferred stock pays fixed dividends which is similar to the interest paid on bonds
preferred stock is considered to be a special type of debt rather than equity because
preferred stockholders received a fixed dividend
Growth stocks usually do not pay dividends. Therefore the stock value increase because the firms:
reinvests earnings to provide dividends in the future
Which statement below best describes how fixed costs and variable costs impact operating cash flows?
As output increases, fixed costs do not increase; variable costs increase.