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