Finance Chapter 8

Which one of the following statements is correct?

Stocks can have negative growth rates.

Which one of these statements related to preferred stock is correct?

cumulative preferred shares are more valuable than comparable noncumulative shares.

A forward PE is based on:

estimated future earnings

A floor broker on the NYSE does which one of the following?

executes orders on behalf of customers

A person on the floor of the NYSE who executes buy and sell orders on behalf of customers is called a(n):

floor broker

An individual on the floor of the NYSE who owns a trading license and buys and sells for his or her personal account is called a:

floor trader

When using the two-stage dividend growth model:

g1 can be greater than R.

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

Supernormal growth is a growth rate that:

is unsustainable over the long term.

Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

must still declare each dividend before it becomes an actual company liability.

The annual dividend yield is computed by dividing ________ annual dividend by the current stock price.

next year's

The stream of customer orders coming in to the NYSE trading floor is called the:

order flow

National Trucking has paid an annual dividend of $1 per share on its common stock for the past 15 years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:

priced the same as a $1 perpetuity.

The dividend growth model:

requires the growth rate to be less than the required return.

Preferred stock may have all of the following characteristics in common with bonds with the exception of:

tax-deductible payments.

What is the model called that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?

Constant-growth model

You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ________ quarter(s) of dividends when the next dividend is paid.

3

Browning, Inc. owns 50,000 shares of preferred stock in Omega, Inc. What percentage, if any, of the dividend income received by Browning, Inc. from this investment is excluded from federal income taxation in 2018?

50 percent

A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called?

cumulative

Ernst & Frank stock is listed on NASDAQ. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets?

Primary

Hardy Lumber has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?

Right to share in company profits prior to other shareholders

You want to be on the board of directors of Uptown Communications. Since you are the only shareholder who will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected?

straight

The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting?

50 percent plus one vote

Which one of following is the rate at which a stock's price is expected to appreciate?

Capital gains yield

Which one of the following rights is never directly granted to all shareholders of a publicly held corporation?

Determining the amount of the dividend to be paid per share

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

Which one of the following sets of dividend payments best meets the definition of two-stage growth as it applies to the two-stage dividend growth model?

Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter

What are the distributions of either cash or stock to shareholders by a corporation called?

Dividends

Which one of the following applies to the dividend growth model?

Even if the dividend amount and growth rate remain constant, the value of a stock can vary.

Jen owns 30 shares of stock in Delta Fashions and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information?

If cumulative voting applies, Jen is assured one seat on the board.

Which one of the following is an electronic system used by the NYSE for directly transmitting orders to designated market makers?

Pillar system

Winston Co. has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true?

The stock has a negative capital gains yield.

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

a decrease in all stock values.

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

broker

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

common

An agent who maintains an inventory from which he or she buys and sells securities is called a:

dealer

A member who acts as a dealer in a limited number of securities on the floor of the NYSE is called a:

designated market maker

Which one of the following represents the capital gains yield as used in the dividend growth model?

g

The owner of a trading license for the NYSE is called a:

member

Dixie South currently pays an annual dividend of $1.46 a share and plans on increasing that amount by 2.75 percent annually. Northern Culture currently pays an annual dividend of $1.42 a share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Northern Culture has a higher ________ than the stock of Dixie South.

Capital gains yield

Which one of the following statements related to corporate dividends is correct?

Corporate shareholders may receive a tax break on a portion of their dividend income.

Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership. Likewise, no other single shareholder owns sufficient shares to personally control the outcome of the election. Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management?

Proxy fight for control of the board

You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?

voting by proxy

The secondary market is best defined as the market:

where outstanding shares of stock are resold