Chapter9-PracticeProblems - (9-4) Common stock cash flowsF...

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Unformatted text preview: (9-4) Common stock cash flowsF GAnswer: a EASY1.The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.a. Trueb. False(9-4) Marginal investor and priceF GAnswer: a EASY2.When a new issue of stock is brought to market, it is the marginal investor who determines the price at which the stock will trade.a. Trueb. False(9-7) Free cash flows and valuationF GAnswer: a EASY3.Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations.a. Trueb. False(9-8) Preferred stockF GAnswer: b EASY4.Preferred stock is a hybrid--a sort of cross between a common stock and a bond--in the sense that it pays dividends that normally increase annually like a stock but its payments are contractually guaranteed like interest on a bond.a. Trueb. False(9-8) Preferred stockF GAnswer: a EASY5.From an investor's perspective, a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds. However, from a corporate issuer's standpoint, these risk relationships are reversed: bonds are the most risky for the firm, preferred is next, and common is least risky....
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This note was uploaded on 05/03/2011 for the course FINC 101 taught by Professor Lee during the Spring '11 term at Central Connecticut State University.

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Chapter9-PracticeProblems - (9-4) Common stock cash flowsF...

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