Finance Ch 7
Corporate Governance can be defined as: The governing of price changes in common stock The rules and regulations for managers of the firm None of these are correct The method of determining the value of stocks The paying of dividends to preferred shareholders
The rules and regulations for managers of the firm
A right that common stock shareholders have is the right to vote on company management and policy. (T/F)
True
An investor who buys shares of common stock becomes a part-owner of the firm. (T/F)
True
Equity often is a big part of individual investment portfolios. (T/F)
True
T or F - Both common stock and preferred stock allow shareholders a claim to the assets of the company.
True
T or F - Common shareholders have the right to vote while preferred shareholders do not.
True
T or F - If the return required by shareholders increases, then the price of a stock will decrease.
True
T or F - Suppose a company, which fell on hard times and withheld the payment of dividends to both preferred and common shareholders for the past year, decided to reinstitute the payment of dividends. The company cannot pay a dividend to common shareholders without paying dividends to preferred shareholders.
True
T or F - Suppose a company, which fell on hard times and withheld the payment of dividends to preferred shareholders for the past year, decided to reinstitute the payment of dividends. The company must pay all the dividends owed to preferred shareholders.
True
The constant growth model for pricing stocks is inappropriate for Firms that pay no dividends All of the above Firms with supernormal growth periods Firms with erratic earnings
All of the above
Which of the following statements correctly defines the difference between preferred stock and common stock? Preferred shareholders have more of a claim to dividends than common stockholders Preferred shareholders do not have the voting rights that common stockholders have Common shareholders have more exposure to variable share prices than preferred shareholders All of the above None of the above
All of the above
If a company skips a dividend payment to preferred shareholders, then the company _____________. Must pay the dividend to common shareholders Must repurchase shares from both common and preferred shareholders Cannot pay any dividends to common shareholders until the preferred dividend is paid All of the above None of the above
Cannot pay any dividends to common shareholders until the preferred dividend is paid
Which one of the following does NOT describe preferred stock? Has fixed dividends. Dividends are cumulative. Has no maturity. Has the lowest priority to claim on firm assets in the case of bankruptcy.
Has the lowest priority to claim on firm assets in the case of bankruptcy.
In bankruptcy, claimants are paid in the following order: Common stockholders first, debt holders next, and preferred stockholders last. Debt holders first, common stockholders next, and preferred holders last. Debt holders first, preferred stockholders next, and common stockholders last. Preferred stockholders first, common stockholders next, and debt holders last.
Debt holders first, preferred stockholders next, and common stockholders last.
Knowing about equity is only important if you want to become a Wall Street banker. (T/F)
False
T or F - According to the Gordon Growth Model, if the growth rate of dividends increases, the price of a stock will decrease.
False
T or F - Common shareholders have preferences to dividends while preferred shareholders have preferences to ownership in the firm.
False
T or F - Common stock represents a hybrid security while preferred stock represents ownership in the company.
False
T or F - The cash flows that common shareholders receive are referred to as coupons.
False
T or F - The price of preferred stock usually varies more than the price of common stock.
False
Preferred stock generally has Variable dividends, no voting rights, and no participation. Fixed dividends, voting rights, and participation. Fixed dividends, no voting rights, and participation. Fixed dividends, no voting rights, and no participation.
Fixed dividends, no voting rights, and no participation.
Which of the following will increase the value of a common stock? Higher growth rate. None of the above. Higher required rate of return. Smaller dividend.
Higher growth rate.
Which of the following is NOT a characteristic of common stock? Has voting rights. Pays fixed dividends. Has the lowest priority to claim the asset in case of bankruptcy. Has no maturity.
Pays fixed dividends.
Which of the following securities is considered a hybrid security? Common Stock Preferred Stock Bond Annuity None of the above
Preferred Stock
Which of the following is known as a hybrid security? Short-term debt Long-term debt Preferred stock Common stock
Preferred stock
Which of the following securities represents ownership in the firm? Annuity Bond Preferred stock None of the above All of the above
Preferred stock
Stockholders have a __________ claim on firm earnings and assets. Guaranteed Residual Fixed Contracted
Residual
If a company skips a dividend payment to stockholders of preferred stock with the cumulative feature, then the company: must pay the dividend to common shareholders. must repurchase shares from both common and preferred shareholders. cannot pay any dividends to common shareholders until the preferred dividend is paid. All of the above. None of the above.
cannot pay any dividends to common shareholders until the preferred dividend is paid.
The difference between preferred and common stock is that preferred stock normally has voting rights. normally pays fixed dividends. has lower priority in dividends. normally does not have cumulative dividends.
normally pays fixed dividends