Chapter 8 Smartbook questions

When applying two-stage growth, in the second stage, g2 _____.

must be less than R

When assuming nonconstant growth in dividends, to avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends _____.

start growing at a constant rate sometime in the future

The idea for________ -stage growth is that the dividend will grow at a rate of g1 for t years and then grow at a rate of g2 thereafter, forever.

two or 2

Which of the following entities declares a dividend?

the board of directors

When the stock being valued does not pay dividends,

the dividend growth model can still be used.

According to the average accounting return rule, a project is acceptable if its average accounting return exceeds:

a target average accounting return

Initial public offerings of stock occur in the ____ market.

primary

In a board, only a fraction of the directorships are up for election at any one time.

staggered

The main reason for considering nonconstant growth in dividends is to allow for _____ growth rates over _____.

supernormal; some finite length of time

Investment firms that are active participants in stocks assigned to them are called ______ liquidity providers.

supplmental

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

Dividends may grow at a constant rate.

A benchmark PE ratio can be determined using:

1) the PE's of similar companies 2) a company's own historical PE's

NASDAQ has which of these features?

1. Multiple market maker system 2. Computer network of securities dealers

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

Broker

Suppose Bob owns 20 shares and Vikki owns 30 shares in Good Company, and there are five members of the board of directors. Under which voting arrangement can Bob assure himself of a board member that represents his interests?

Cumulative voting

Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____.

Dealer

Common stock has no special preference either in receiving ______ or in bankruptcy.

Dividends

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

Dividends Capital gains

Select all that apply Which of the following are features of common stock?

It has no special preference in receiving dividends. It generally has voting rights. It has no special preference in bankruptcy.

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.

A _____ is the grant of authority by a shareholder to someone else to vote his or her shares.

Proxy

The trading of existing shares occurs in the ______ market.

Secondary

With _______ voting, the directors are elected one at a time and the only way to guarantee a seat is to own 50 percent plus one share.

Straight

True or false: It can be advantageous to have a staggered board because it provides "institutional memory."

True

Capital Corp is considering a project whose internal rate of return is 14%. If Capital's required return is 14%, the project's NPV is:

Zero

The AAR is calculated by taking the average net income and dividing it by the average_____ _ value.

book

Preferred stock has preference over common stock in the _____.

distribution of corporate assets payment of dividends

A______ is a payment by a corporation to shareholders, made in either cash or stock.

dividend

When voting for the board of directors, the number of votes a shareholder is entitled to is usually ______ vote per share held.

one or 1

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

A stock with dividend priority over common stock is called a Blank______ stock.

preferred

Most voting in large corporations is done by proxy because _____.

most small shareholders do not attend the annual meeting

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

An NYSE member who executes customer buy and sell orders is called a____broker

floor

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

internet

One reason corporations use staggered boards is that _____.

it makes takeover attempts less likely to be successful