Chapter 8 Stock Valuation

Select all that apply A benchmark PE ratio can be determined using: Multiple select question. a company's own historical PEs Bank of Canada estimates the PEs of similar companies the constant-growth model

a company's own historical PEs the PEs of similar companies

A zero-growth model for stock valuation is distinguished by a ____. Multiple choice question. negative dividend growth rate constant discount rate constant dividend amount zero stock price at Year 0

constant dividend amount

Select all that apply Preferred stock has preference over common stock in the _____. Multiple select question. portfolios of individual investors number of votes given distribution of corporate assets payment of dividends

distribution of corporate assets payment of dividends

A -__________ is a payment by a corporation to shareholders, made in either cash or stock.

dividend

The assumption of constant growth infers that _________. Multiple choice question. the real interest rate remains constant dividends change at a constant rate stock prices remain constant

dividends change at a constant rate

An NYSE member who executes customer buy and sell orders is called a __________ broker.

floor broker

Mota Motors has eight directors on its board, two of whom go up for election each year. This is an example of a: Multiple choice question. voting rights board staggered board proxy board managed board

staggered board

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.

Field 1: straight

Stock price reporting has increasingly moved from traditional print media to the ______ in recent years. Multiple choice question. internet ticker tape machine network newscasts radio

Interner

Select all that apply Which of the following are features of common stock? Multiple select question. It receives dividends every quarter. It receives interest semi-annually. It has no special preference in bankruptcy. It has no special preference in receiving dividends. It generally has voting rights.

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

Cumulative voting means board members are elected one at a time, with each shareholder casting his or her allotted votes for each seat on the board. True false question. True False

False Reason: Cumulative voting means that each shareholder may distribute votes however he or she wishes. If there are four seats on the board and the shareholder owns 20 shares, he or she can cast 80 votes for one board member.

For investors in the stock market, dividends from stocks are fixed and guaranteed, while capital gains are variable and not guaranteed. True false question .True False

False Reason: Neither dividends nor capital gains are fixed or guaranteed.

One reason corporations use staggered boards is that _____. Multiple choice question. it attracts potential acquirers it makes it easier for minority shareholders to elect a director to represent them it makes takeover attempts less likely to be successful all board members are elected at the same time, so the election process works more smoothly

it makes takeover attempts less likely to be successful

A share of common stock is (less/more) difficult to value in practice than a bond.

more

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 _____. Multiple choice question. grow at the exact growth rate of sales forever start growing at a constant rate sometime in the future always revert to zero after the third year grow at different rates every year forever

start growing at a constant rate sometime in the future

Select all that apply A benchmark PE ratio can be determined using: Multiple select question. the constant-growth model a company's own historical PEs the PEs of similar companies Bank of Canada estimates

a company's own historical PEs the PEs of similar companies

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

Field 1: proxy

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

Field 1: staggered, stagger, or classified

Which of the following entities declares a dividend? Multiple choice question. The CFO The board of directors Existing shareholders The management of the company

The board of directors

Select all that apply Which of the following are reasons why it is more difficult to value common stock than it is to value bonds? Multiple select question. Common stock cash flows are not known in advance All bond and stock cash flows are guaranteed to be paid. The life of a common stock is essentially forever. The rate of return required by the market is not easily observed.

Common stock cash flows are not known in advance The life of a common stock is essentially forever. The rate of return required by the market is not easily observed.

Select all that apply NASDAQ has which of these features? Multiple select question. Computer network of securities dealers Multiple market maker system Single DMM system Physical trading floor

Computer network of securities dealers Multiple market maker system

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? Multiple choice question. Cumulative voting Minority voting Straight voting

Cumulative voting

Select all that apply What information do we need to determine the value of stock using the zero-growth model? Multiple select question. Future stock price Discount rate Annual dividend amount Capital gain amount

Discount rate Annual dividend amount

An NYSE member who acts as a dealer in particular stocks is called __________ a market maker.

Field 1: designated

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

True

A person who brings buyers and sellers together is called a(n) ______. Multiple choice question. dealer investor lawyer broker

broker

Most voting in large corporations is done by proxy because _____. Multiple choice question. most shareholders attend the annual meeting management prohibits small shareholders from attending the annual meeting most small shareholders do not attend the annual meeting most shareholders do not vote by proxy

most small shareholders do not attend the annual meeting

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

one

When voting for the board of directors, the number of votes a shareholder is entitled to is generally determined as follows: Multiple choice question. one vote per proxy one vote per shareholder one vote per share held one vote for every 100 shares held

one vote per share held

A stock with dividend priority over common stock is called a Blank______ stock. Multiple choice question. preferred common cumulative stated

preferred

Initial public offerings of stock occur in the ____ market. Multiple choice question. primary secondary futures commodities

primary

Select all that apply Three special case patterns of dividend growth include _____. Multiple select question. zero growth fast growth negative growth constant growth discounted growth nonconstant growth

zero growth constant growth nonconstant growth

Someone who maintains an inventory of stocks and buys and sells those stocks is known as a ____. Multiple choice question. dealer speculator retailer broker

Dealer Reason: A speculator buys stocks he thinks will go up and sells those that he thinks will go down. He has no obligation to keep an inventory. Reason: A dealer is sort of like a retailer in stocks, but with a different name (and no shelves). Reason: A broker does not necessarily maintain inventory.

The main reason for considering nonconstant growth in dividends is to allow for _____ growth rates over _____. Multiple choice question. finite; some infinite length of time supernormal; some finite length of time normal; some finite length of time supernormal; some infinite length of time

supernormal; some finite length of time

When the stock being valued does not pay dividends, Multiple choice question. the dividend growth model can not be used. the dividend growth model can still be used.

the dividend growth model can still be used.

When the stock being valued does not pay dividends, Multiple choice question. the dividend growth model can still be used. the dividend growth model can not be used.

the dividend growth model can still be used.

Select all that apply Which of the following are expected cash flows to investors in stocks? Multiple select question. Dividends Interest Fees Capital gains

Dividends Capital gains

Which one of the following is true about dividend growth patterns? Multiple choice question. Dividends never grow. Dividends always grow at a constant rate. Dividends may grow at a constant rate. Dividends always grow at a differential rate

Dividends may grow at a constant rate.

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

Field 1: dividends

Select all that apply NASDAQ has which of these features? Multiple select question. Computer network of securities dealers Physical trading floor Multiple market maker system Single DMM system

Computer network of securities dealers Multiple market maker system

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? Multiple choice question. Minority voting Cumulative voting Straight voting

Cumulative voting Reason: Under cumulative voting, Bob would have 20 X 5 = 100 votes to cast. He could cast all 100 shares for a candidate of his choice, assuring the candidate of a seat on the board. Vikki would have a total of 30 X 5 = 150 shares, and there is no way to distribute her shares over five candidates such that each had more than 100 votes.

Cumulative voting means board members are elected one at a time, with each shareholder casting his or her allotted votes for each seat on the board. True false question.TrueFalse

False Reason: Cumulative voting means that each shareholder may distribute votes however he or she wishes. If there are four seats on the board and the shareholder owns 20 shares, he or she can cast 80 votes for one board member.

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

Field 1: internet

Which of the following occurs in the primary market? Multiple choice question. Outstanding shares are resold Issuers repurchase shares Newly-issued stocks are initially sold Shareholders gift shares to charities

Newly-issued stocks are initially sold Reason: Outstanding shares are resold in the secondary market. Reason: Issuers often repurchase shares, but it is done on the secondary market. Reason: Shareholders may gift share to charities; if they do it will take place in the secondary market.

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? Multiple choice question. Each minority shareholder would have one preferred board member. Minority shareholders don't vote in such an arrangement. Corporations always have one board member designated to protect the interests of minority shareholders. No minority shareholder would have enough votes to win any seat on the board.

No minority shareholder would have enough votes to win any seat on the board.

The goal of many successful organizations is a(n) ______ rate of growth in dividends. Multiple choice question. steady negative erratic zero

steady