Corporate Finance - CH.7-9 "Study Guide"

D1 =

Next expected Dividend

Which of the following is NOT one of the basic areas of finance?

Personal finance

Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?

The required rate of return is unobservable Dividends are unknown and uncertain Stock has no set maturity

The NYSE differs from the NASDAQ primarily because the NYSE has:

a face-to-face auction market a physical location

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

expected

P1 =

price in one year.

If the IRR is greater than the _______ ________, we should accept the project.

required return

True or false: Common stock has a set maturity.

False

According to the textbook, which of the following is not one of the three main questions to be addressed if you wanted to start your own business?

How many employees will I need?

P0 =

Price today

P0 = (D1 + P1)/(1 + __)

R

The constant-growth model assumes that _________.

dividends change at a constant rate

The value of a firm is derived using the firm's ______ rate and its _______ rate.

growth; discount

If a firm is evaluating two possible projects, both of which require the use of the same production facilities, and taking one project means that we cannot take the other, these projects would be considered _______________.

mutually exclusive

If a company's growth for Years 1 through 3 is 20% but stabilizes at 5% beginning in Year 4, its growth pattern would be described as _______.

non-constant

P1 = (__ + P2)/(1 + R)

D2 7.2 More generally, let Po be the current price of the stock, and assign P1 to be the price in one period. If D1 is the cash dividend paid at the end of the period, then.

Which of these topics is not of especial interest to a financial manager?

Debt

R =

Discount rate

Crossover bonds can also be called _____ bonds.

5B

In large firms, financial activity is usually associated with which top officer?

Chief financial officer

Which of the following are components of project cash flow?

Operating cash flow Capital spending Change in net working capital

What are the cash flows involved in the purchase of a 5-year zero-coupon bond that has a par value of $1,000 if the current price is $800? Assume the market rate of interest is 5 percent.

Pay $800 today and receive $1,000 at the end of 5 years

Operating cash flow is a function of:

Taxes, Earnings Before Interest and Taxes (EBIT), Depreciation

A shareholder's liability is limited to which of these?

The amount the shareholder invested in the corporation

Which of the following are fixed costs?

-cost of equipment -rent on a production facility

If a firm's sales estimate used in its base case analysis is 1,000 units per year and they anticipate the upper and lower bounds to be +/- 15%, What is the "best case" for units sold per year?

1,150

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

Dividends may grow at a constant rate.

Three special case patterns of dividend growth discussed in the text include:

zero growth, constant growth, and non-constant growth

D0 =

Dividend just paid

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

Dividend/Discount rate = D/R P0=D/R