Finance Chp 9 TF
Preferred stock represents ownership in a corporation and entitles the owner to a dividend, which must be paid after dividends are paid to common stockholders.
False
The bond valuation model can be used to value perpetual preferred stock.
False
The constant-growth dividend model assumes that dividends will stay at the same amount forever.
False
The constant-growth stock has constant amount of dividends and does not grow over time.
False
The payments of preferred stock dividends are contractual obligations.
False
Whenever the required rate of return exceeds the dividend growth rate, the constant-growth model provides invalid solutions.
False
Legally, common stockholders enjoy limited liability; that is, their losses are limited to the original amount of their investment in the firm, and their personal assets cannot be taken to satisfy the obligations of the corporation.
True
One of the basic rights of the owners is to vote on all important matters that affect the company, such as the election of the board of directors or a proposed merger or acquisition.
True
Owners of common stock are not guaranteed any dividend payments and have the lowest-priority claim on the firm's assets in the event of bankruptcy.
True
Owners of common stock have the lowest-priority claim on the firm's assets in the event of bankruptcy.
True
Preferred dividend payments are fixed amounts paid regularly, similar to the interest payments on corporate bonds.
True
Preferred stock dividends are declared by the board of directors, and failure to pay dividends does not result in default.
True
Preferred stock represents an ownership interest in the corporation, but as the name implies, preferred stock receives preferential treatment over common stock.
True
Preferred stock represents ownership in a corporation and entitles the owner to a dividend, which must be paid before dividends are paid to common stockholders.
True
Preferred stock with no fixed maturity can be valued as a perpetuity.
True
The constant-growth dividend model assumes that dividends will grow at a constant rate forever.
True
The constant-growth dividend model tells us that the current price of a share of stock is the next period dividend divided by the difference between the discount rate and the dividend growth rate.
True
The constant-growth stock has dividends growing at a constant rate over time.
True
The payments of preferred stock dividends are not contractual obligations.
True
When the security markets are efficient and the current market prices of securities reflect all available information relevant to the valuation of those securities, the security prices will be near or at their true (intrinsic) value.
True
Whenever the dividend growth rate exceeds the required rate of return, the constant-growth model provides invalid solutions.
True
Common-stock holders have limited liability.
True
In secondary markets, outstanding shares of stock are bought and sold among investors.
True
Preferred stock does not represent an ownership interest in the corporation, but as the name implies, preferred stock receives no preferential treatment over common stock.
False
Preferred dividend payments are variable amounts paid irregularly, similar to the principal payments on corporate bonds.
False
Preferred stock dividends are declared by the CEO of the firm, and failure to pay dividends results in default.
False
Common stock is considered to have fixed maturity.
False
Common stocks are not perpetuities in the sense that they have a fixed maturity.
False
Common-stock holders have unlimited liability.
False
Even though preferred stock is not an equity security, the owners have full voting privilege.
False
For a company that has no growth, dividends increases over time.
False
If preferred stock dividends are not paid, the lack of payment is legally viewed as a default.
False
In primary markets, outstanding shares of stock are bought and sold among investors.
False
In the general dividend-valuation model, the price of a share of stock is the future value of all expected future dividends.
False
Legally, common stockholders have unlimited liability.
False
Legally, common stockholders have unlimited liability; that is, their losses are not limited to the original amount of their investment in the firm, and their personal assets can be taken to satisfy the obligations of the corporation.
False
Owners of common stock are guaranteed dividend payments by the firm.
False
Common stock represents the basic ownership claim in a corporation.
True
Common stocks are perpetuities in the sense that they have no maturity.
True
Common stock is considered to have no fixed maturity.
True
