FIN630-C8

Dusty corporation has an issue of preferred stock that pay a dividend of 7% of its state value, which is $100. Which of the following would be a commonly used name for that preferred stock?

$7 preferred

Fundamentally, the business of the NYSE is to attract and process ____________.

Order Flow

Scott corporation does not pay dividends. The PE ratio for its industry is 13.3, and Scott's EPS were a dollar 47. And what price should Scott's stock trade?

Price at time (t) = Benchmark PE X EPS = $19.55

Match the following terms relating to stock valuation.

Price in one year; Dividend in one year; Discount rate; Price today

A PE ratio that is based on estimated future earnings is known as a ______ PE ratio.

forward

One requirement of the dividend growth model is:

g<r

Three special case patterns of dividend growth include:

non-constant growth; zero growth; constant growth

Preferred stock preference over common stock in the:

payment of dividends distribution of corporate assets

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

The two most important stock markets in the U.S. are the New York Stock Exchange and _____.

the NASDAQ

What is the price of a stock at the end of one year (P1) if the dividend for Year 2 (Div2) is $5, the price for Year 2 (P2) is $20, and the discount rate is 10%?

22.73

Matthews Company has two classes of common stock, and each share represents the same proportion of ownership in the company. Class A has 2 votes for each share, Class B has one vote per share. Which class is more valuable?

Class A

All else constant, the dividend yield will increase if the stock price ______.

decreases

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

internet

A benchmark PE ratio can be determined using:

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

What is the value of a stock if the next year's dividend is $6, the discount rate is 11 percent and the constant rate of growth is 3 percent?

$75

One reason corporations use staggered boards is that:

It makes takeover attempts less likely to be successful.

Which of the following is usually a right of common shareholders?

Voting rights The right to a proportional share of dividends paid.

What is the price in one year for a stock that pays a dividend in one year of $2 with a growth rate of 8% and a required return of 10%?

$108 P1=(D2) / (r-g) = [D1 * (1+g) / (r-g) = ($2 * 1.08) / .10-.08)

Which of the following are features of common stock?

1) it has no special preference in receiving dividends 2) it has no special preference in bankruptcy 3) it generally has voting rights

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

Discount rate and annual dividend amount

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

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

Most voting in large corporations is done by proxy because:

the small shareholders do not attend the annual meeting

Which of the following is usually a right of common shareholders?

voting rights The rights to a proportional share of dividends paid.

If the dividend received next year is $2, the discount rate is 10 percent, and the stock is currently priced at $25, the constant growth rate must be ______ percent.

2

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

Capital gains and dividends. Stock investors do not receive interest. Their cash flows come from capital gains and dividends only!

In which ways is preferred stock like a bond?

Preferred shareholders receive a stated value if the firm liquidates, like bondholders; Preferred shareholders receive a stated dividend, similar to interest on a bond; Some preferred stock has credit ratings, like bonds; Preferred stock sometimes has a sinking fund, giving in a set maturity like bonds.

The goal of many successful organizations is a(n) ______ rate of growth in dividends.

Steady

Which of the following entities declares a dividend?

The board of directors.

The trading of existing shares occurs in the ________ market.

secondary

When the stock being valued does not currently pay dividends,

the dividend growth model can still be used based on the future dividends

T/F: 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

The value of a firm is a function of its ___ rate and its ___ rate.

Growth Rate Discount Rate

One common reason for having two classes of common stock with different voting rights is:

It is easier for insiders such as founding families to maintain control of the company.

NASDAQ has which of these features?

Multiple market maker system. Computer network of securities dealers.

Is a company required to pay preferred dividends?

No; the company may differ dividends on preferred stock; however, they cannot pay dividends to come in shareholders until preferred dividends are paid.

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.

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.

The NYSE member who acts as a dealer in a small number of securities is called a ___.

specialist

The constant growth formula calculates the stock price:

The constant growth formula calculates the stock price:

An asset's value is determined by the present value of its ___ cash flows.

future

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

Broker

Will is deciding whether or not to buy Dang Corporation stock, whose current price is $54.95. Dang paid a dividend of $2.17 this year. Will estimates that dividends will grow very quickly, at a rate of 12%, for the next four years. After that, he expects the dividend growth rate to fall to 5%. Should Will buy the stock if his required rate of return is 10%?

Yes; using the two-stage growth model, the stocks value is $58.06.

If the growth rate (g) is zero, the capital games yield is?

Zero

The price of a share of common stock is equal to the present value of all ___ future dividends.

expected