chapter 7 finance example #27680

7) Which of the following is an advantage for a firm to issue common stock over long-term debt?

8) Which of the following is a difference between common stock and bonds?

9) Holders of equity capital ________.

10) Because equityholders are the last to receive any distribution of assets as a result of bankruptcy proceedings, they expect ________.

11) If bankruptcy were to occur, ________ would have the first claim on assets.

23) Which of the following typically applies to common stock but not to preferred stock?

24) Which of the following is true of common stocks?

25) Which of the following is true of equity?

26) Equity capital can be raised through ________.

27) Common stockholders are sometimes referred to as ________.

28) Which of the following is true of common stock?

29) A proxy statement is a statement transferring ________.

30) Which of the following is typically a feature of common stock?

31) ADRs are ________.

32) ________ are promised a fixed periodic dividend that must be paid prior to paying any common stock dividends.

33) Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are ________.

34) An 8 percent preferred stock with a market price of $110 per share and a $100 par value pays a cash dividend of ________.

35) From a corporation's point of view, a disadvantage of issuing preferred stock is ________.

36) Which of the following is a disadvantage of issuing preferred stock from the common stockholders' perspective?

37) The cost of preferred stock is ________.

38) Preferred stock is characterized by ________.

39) A firm has issued cumulative preferred stock with a $100 par value and a 12 percent annual dividend. For the past two years, the board of directors has decided not to pay a dividend. At the end of the current year, the preferred stockholders must be paid ________ prior to paying the common stockholders.

40) A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders at the end of third year?

41) A violation of preferred stock restrictive covenants usually permits preferred shareholders to ________.

42) Which of the following is true of preferred stocks?

43) Preferred stockholders ________.

44) Which of the following is usually a right of a preferred stockholder?

45) Which of the following is typically a feature of preferred stocks?

18) Regarding the tax treatment of payments to securities holders, it is true that ________.

19) Which of the following is a marketable security?

20) Which of the following is true of outstanding shares?

21) Shares of stock currently owned by a firm's shareholders are called ________.

22) If a firm has class A and class B common stock outstanding, it means that ________.

23) Common stockholders expect to earn a return by receiving ________.

24) The purpose of nonvoting common stock is to ________.

25) A proxy statement gives shareholders the right ________.

26) A proxy battle is the attempt by ________.

27) The attempt by a nonmanagement group to gain control of the management of a firm by soliciting a sufficient number of proxy votes is called a ________.

28) Which of the following is true of par value of a common stock?

29) A firm issued 5,000 shares of $1 par-value common stock, receiving proceeds of $20 per share. The amount recorded for the paid-in capital in excess of par account is ________.

30) A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40 per share. The amount recorded for the paid-in capital in excess of par account is ________.

31) A firm issued 10,000 shares of no par-value common stock, receiving proceeds of $40 per share. The amount recorded is ________.

32) ________ are financial instruments that allow stockholders to purchase additional shares at a price below the market price, in direct proportion to their number of owned shares.

33) Which of the following is true of a common stock?

34) Stock rights provide the stockholder with ________.

35) The preemptive right gives shareholders the right ________.

36) A firm has the balance sheet accounts, Common Stock and Paid-in Capital in Excess of Par, with values of $10,000 and $250,000, respectively. The firm has 10,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold for ________.

37) A firm has the balance sheet accounts, Common Stock and Paid-in Capital in Excess of Par, with values of $40,000 and $500,000, respectively. The firm has 40,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold for ________.

38) A(n)________ is hired by a firm to find prospective buyers for its new stock or bond issue.

39) Which of the following is true of securities analysts?

40) In a ________, new shares are sold to the existing shareholders.

41) Treasury stock refers to the ________.

42) Which of the following is an attribute of investment bankers?

43) Which of the following is true of the issuance of nonvoting common stock?

15) Rational buyers and sellers use their assessment of an asset's risk and return to determine its value. Relative to this concept, which of the following is true?

16) According to the efficient market hypothesis, prices of actively traded stocks ________.

17) If expected return is less than required return on an asset, rational investors will ________.

18) If the expected return is above the required return on an asset, rational investors will ________.

19) Which of the following is true of efficient-market hypothesis?

20) Preferred stock is valued as if it were a ________.

21) A firm has an issue of preferred stock outstanding that has a stated annual dividend of $4. The required return on the preferred stock has been estimated to be 16 percent. The value of the preferred stock is ________.

22) A firm has to pay a dividend of $1.20 per share till perpetuity, a zero growth rate of dividends, and a required return of 10 percent. The value of the firm's preferred stock is ________.

23) A firm has an issue of preferred stock outstanding that has a par value of $100 and a 4% dividend. If the current market price of the preferred stock is $50, the yield on the preferred stock is ________.

25) In the Gordon model, the value of a common stock is the ________.

26) Emmy Lou, Inc. has an expected dividend next year of $5.60 per share, a growth rate of dividends of 10 percent, and a required return of 20 percent. The value of a share of Emmy Lou, Inc.'s common stock is ________.

27) A firm has experienced a constant annual rate of dividend growth of 9 percent on its common stock and expects the dividend per share in the coming year to be $2.70. The firm can earn 12 percent on similar risk involvements. The value of the firm's common stock is ________.

28) You are planning to purchase the stock of Ted's Sheds Inc. and you expect it to pay a dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the stock for $100 in 3 years. If your required return for purchasing the stock is 12 percent, how much would you pay for the stock today?

29) Smith Corporation's common stock is expected to pay a dividend of $3.00 forever and currently sells for $21.42. What is the required rate of return?

30) Julian is considering purchasing the stock of Pepsi Cola because he really loves the taste of Pepsi. What should Julian be willing to pay for Pepsi today if it is expected to pay a $2 dividend in one year and he expects dividends to grow at 5 percent indefinitely? Julian requires a 12 percent return to make this investment.

31) Harry Corporation's common stock currently sells for $180 per share. Harry just paid a dividend of $10.18 and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Harry Corporation's stock sell for one year from now?

32) Tangshan China Company's stock is currently selling for $80.00 per share. The expected dividend one year from now is $4.00 and the required return is 13 percent. What is Tangshan's dividend growth rate assuming that dividends are expected to grow at a constant rate forever?

33) Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. Assuming Tangshan China's most recent dividend was $5.50, what is the required rate of return on Tangshan's stock?

34) Daniel Custom Cycles' common stock currently pays no dividends. The company plans to begin paying dividends beginning 3 years from today. The first dividend will be $3.00 and dividends will grow at 5 percent per year thereafter. Given a required return of 15 percent, what would you pay for the stock today?

35) Jia's Fashions recently paid a $2 annual dividend. The company is projecting that its dividends will grow by 20 percent next year, 12 percent annually for the two years after that, and then at 6 percent annually thereafter. Based on this information, how much should Jia's Fashions common stock sell for today if her required return is 10.5%?

9) Patrick Company expects to generate free-cash of $120,000 per year forever. If the firm's required return is 12 percent, the market value of debt is $300,000, the market value of preferred stock is $70,000, and the company has 100,000 shares of stock outstanding. What is the value of Patrick's stock?

10) Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market premium is 4 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be ________.

11) Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market return is 8 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be ________.

12) ________ is the value of a firm's ownership in the event that all assets are sold for their exact accounting value and the proceeds remaining after paying all liabilities (including preferred stock) are divided among common stockholders.

13) ________ is the actual amount each common stockholder would expect to receive if a firm's assets are sold for their market value, creditors and preferred stockholders are repaid, and any remaining money is divided among the common stockholders.

14) ________ is a guide to a firm's value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the industry.

15) Which of the following valuation methods is superior to others in the list since it considers expected earnings?

16) The use of the ________ is especially helpful in valuing firms that are not publicly traded.

17) The current price of DEF Corporation stock is $26.50 per share. Earnings next year should be $2 per share and it should pay a $1 dividend. The P/E multiple is 15 times on average. What price would you expect for DEF's stock in the future?

18) At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Based on this information, Tangshan's book value per share of common stock is ________.

19) At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. If Tangshan could sell its assets for $52.5 million, Tangshan's liquidation value per share of common stock is ________.

20) At year end, Tangshan China Company balance sheet showed total assets of $60 million, total liabilities (including preferred stock) of $45 million, and 1,000,000 shares of common stock outstanding. Next year, Tangshan is projecting that it will have net income of $1.5 million. If the average P/E multiple in Tangshan's industry is 15, what should be the price of Tangshan's stock?

6) Milton Glasses recently paid a dividend of $1.70 per share, is currently expected to grow at a constant rate of 5%, and has a required return of 11%. Milton Glasses has been approached to buy a new company. Milton estimates if it buys the company, its constant growth rate would increase to 6.5%, but the firm would also be riskier, therefore increasing the required return of the company to 12%. Should Milton go ahead with the purchase of the new company?