test5 - Chapter 5-Valuing Stocks MULTIPLE CHOICE 1. The...

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Chapter 5—Valuing Stocks MULTIPLE CHOICE 1. The first public sale of company stock to outside investors is called a/an a. seasoned equity offering. b. shareholders’ meeting. c. initial public offering. d. proxy fight. ANS: C DIF: E REF: 5.2 Primary Markets and Issuing New Securities 2. Which statement about common shareholders is incorrect? a. Shareholders only have a residual claim. b. Shareholders have precedence over all other claimholders in the case of bankruptcy. c. Shareholders have a voting right. d. Shareholders are the ultimate owners of a corporation. ANS: B DIF: E REF: 5.1 The Essential Features of Preferred and Common Stock 3. What is the market capitalization of a company? a. The market value of all outstanding debt. b. The book value of the company’s debt. c. The market value of all outstanding shares. d. The book value of the company’s total equity. ANS: C DIF: E REF: 5.1 The Essential Features of Preferred and Common Stock 4. Which of the following is not a difficulty associated with valuing common stock? a. Common stock does not have a specific expiration date. b. The required rate of return is difficult to estimate. c. Common stock does not promise a fixed cash flow stream. d. All of the above are considered difficulties associated with valuing common stock. ANS: D DIF: E REF: 5.4 Stock Valuation 5. Which of the following stock exchanges has the most strict listing requirements? a. American Stock Exchange b. NASDAQ
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c. New York Stock Exchange d. Pacific Stock Exchange ANS: C DIF: E REF: 5.3 Secondary Markets for Equity Securities 6. Bavarian Sausage, Inc. has preferred stock outstanding. This stock pays a semiannual dividend of $1.25. If the next dividend is paid six months from now and the annual required return is 10%, what should be the value of the preferred stock? a. $6.25 b. $25 c. $12.50 d. $50.00 ANS: B 1.25/(.10/2) = 25 DIF: M REF: 5.4 Stock Valuation 7. Bavarian Sausage just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock today. a. $11.21 b. $18.32 c. $17.44 d. $25.37 ANS: B 1.57(1.05)/(.14-.05) = 18.32 DIF: E REF: 5.4 Stock Valuation 8. Bavarian Sausage is expected to pay a $1.57 dividend next year and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock today. a. $18.32 b. $17.44 c. $11.21 d. $25.37 ANS: B 1.57/(.14-.05) = 17.44 DIF: E REF: 5.4 Stock Valuation
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9. Bavarian Sausage just paid a $1.57 dividend and investors expect that dividend to grow by 5% each year forever. If the required return on the stock investment is 14%, what should be the price of the stock in 5 years? a.
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This note was uploaded on 03/18/2012 for the course FINA 3383 taught by Professor Lovell during the Fall '10 term at Texas Pan American.

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test5 - Chapter 5-Valuing Stocks MULTIPLE CHOICE 1. The...

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