Finance Chp 9 TF

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Preferred stock represents ownership in a corporation and entitles the owner to a dividend, which must be paid after dividends are paid to common stockholders.

False

The bond valuation model can be used to value perpetual preferred stock.

False

The constant-growth dividend model assumes that dividends will stay at the same amount forever.

False

The constant-growth stock has constant amount of dividends and does not grow over time.

False

The payments of preferred stock dividends are contractual obligations.

False

Whenever the required rate of return exceeds the dividend growth rate, the constant-growth model provides invalid solutions.

False

Legally, common stockholders enjoy limited liability; that is, their losses are limited to the original amount of their investment in the firm, and their personal assets cannot be taken to satisfy the obligations of the corporation.

True

One of the basic rights of the owners is to vote on all important matters that affect the company, such as the election of the board of directors or a proposed merger or acquisition.

True

Owners of common stock are not guaranteed any dividend payments and have the lowest-priority claim on the firm's assets in the event of bankruptcy.

True

Owners of common stock have the lowest-priority claim on the firm's assets in the event of bankruptcy.

True

Preferred dividend payments are fixed amounts paid regularly, similar to the interest payments on corporate bonds.

True

Preferred stock dividends are declared by the board of directors, and failure to pay dividends does not result in default.

True

Preferred stock represents an ownership interest in the corporation, but as the name implies, preferred stock receives preferential treatment over common stock.

True

Preferred stock represents ownership in a corporation and entitles the owner to a dividend, which must be paid before dividends are paid to common stockholders.

True

Preferred stock with no fixed maturity can be valued as a perpetuity.

True

The constant-growth dividend model assumes that dividends will grow at a constant rate forever.

True

The constant-growth dividend model tells us that the current price of a share of stock is the next period dividend divided by the difference between the discount rate and the dividend growth rate.

True

The constant-growth stock has dividends growing at a constant rate over time.

True

The payments of preferred stock dividends are not contractual obligations.

True

When the security markets are efficient and the current market prices of securities reflect all available information relevant to the valuation of those securities, the security prices will be near or at their true (intrinsic) value.

True

Whenever the dividend growth rate exceeds the required rate of return, the constant-growth model provides invalid solutions.

True

Common-stock holders have limited liability.

True

In secondary markets, outstanding shares of stock are bought and sold among investors.

True

Preferred stock does not represent an ownership interest in the corporation, but as the name implies, preferred stock receives no preferential treatment over common stock.

False

Preferred dividend payments are variable amounts paid irregularly, similar to the principal payments on corporate bonds.

False

Preferred stock dividends are declared by the CEO of the firm, and failure to pay dividends results in default.

False

Common stock is considered to have fixed maturity.

False

Common stocks are not perpetuities in the sense that they have a fixed maturity.

False

Common-stock holders have unlimited liability.

False

Even though preferred stock is not an equity security, the owners have full voting privilege.

False

For a company that has no growth, dividends increases over time.

False

If preferred stock dividends are not paid, the lack of payment is legally viewed as a default.

False

In primary markets, outstanding shares of stock are bought and sold among investors.

False

In the general dividend-valuation model, the price of a share of stock is the future value of all expected future dividends.

False

Legally, common stockholders have unlimited liability.

False

Legally, common stockholders have unlimited liability; that is, their losses are not limited to the original amount of their investment in the firm, and their personal assets can be taken to satisfy the obligations of the corporation.

False

Owners of common stock are guaranteed dividend payments by the firm.

False

Common stock represents the basic ownership claim in a corporation.

True

Common stocks are perpetuities in the sense that they have no maturity.

True

Common stock is considered to have no fixed maturity.

True


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