BUAD 3040 CH7

BUAD 3040 CH7 - The value of a share of stock depends on...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Capital refers to a firm’s long-term sources of funds,. This capital can be either borrowed or equity. Borrowed capital is called debt capital or debt financing. Preferred stockholders neither vote no share in company profits. They only receive a fixed dividend payment. Managerial decisions that decrease cash flows or increase risk will result in low stock prices. Similarly, if management can increase cash flows without increasing risk, stock process can be increase. This is the goal of financial managers. Rights of stockholders: 1, a voice in management. 2, claims on income and assets. The true owners of the firm are the stockholders. Preferred stock is a much like debt as it is like common stock. Preferred stockholders receive a fixed dividend payment that does not change, even id the firm does extremely well. They are not allowed to vote, unless the firm has defaulted on its dividends payments. Features of preferred stock: Restrictive covenants, cumulation, participation, call feature, conversion feature.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: The value of a share of stock depends on the cash flows investors can expected to receive by owning that stock. ---True The dividend valuation model assumes that dividends continue being paid forever. ---True Any action that increases the risk of an asset will also increase that assets required return. ---True Under the efficient market hypothesis, when the expected return of a common stock is less than its required return, investors will buy the stock and drive the price upward. ---False. The Gordon growth model requires that required return exceed long term expected growth. ---True The most accurate approach to common stock valuation is the book value per share method. ---False The numerator in the Gordon growth model is NEXT periods expected dividend. ---True Stock market efficiency says that the price of a security accurately reflects all available information about that firm....
View Full Document

Ask a homework question - tutors are online