Common Stock: Characteristics, Valuation, And Issuance

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Question 1
Free
Multiple Choice

Which of the following is not a characteristic of common stock:

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A

has no maturity date

B

considered a permanent form of long-term financing

C

has claims on assets prior to those of preferred stock

D

is a residual form of ownership

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Question 2
Free
Multiple Choice

Stockholders' equity includes all of the following except:

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A

Common stock at par

B

Treasury stock

C

Contributed capital in excess of par

D

Retained earnings

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Question 3
Free
Multiple Choice

The book value per share of common stock is calculated by dividing ____ by the number of shares outstanding

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A

market value of common stock

B

total assets

C

total stockholders' equity plus preferred stock

D

total common stockholders' equity

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Question 4
Free
Multiple Choice

The market value of common stock is primarily based on

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A

the firm's future earnings

B

book value

C

total assets

D

retained earnings

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Question 5
Free
Multiple Choice

Common stockholders have a number of general rights, including all of the following except:

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A

voting rights

B

management rights

C

asset rights

D

dividend rights

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Question 6
Multiple Choice

The book value of an asset represents

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A
the market value
B
the discounted cash flow value
C
the historic acquisition cost of the asset
D
stockholders' acquisition value
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Question 7
Multiple Choice

From an accounting standpoint, when a stock is split

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A
the number of shares outstanding does not change
B
the firms' account balances are changed
C
its par value is changed
D
retained earnings will change
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Question 8
Multiple Choice

In a reverse stock split

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A
the number of shares are decreased
B
the market value is decreased
C
retained earnings decrease
D
par value decreases
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Question 9
Multiple Choice

Which of the following is not an advantage of common stock financing?

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A
no fixed dividend obligation
B
can lower the firm's weighted cost of capital
C
allows the firm a greater degree of flexibility in financial planning
D
involves relatively high flotation costs
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Question 10
Multiple Choice

AVIX has 6.8 million shares outstanding and the firm's charter provides for a majority voting procedure. The company has seven directors up for reelection. What is the minimum number of shares needed to ensure the election of one director?

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A
850,001
B
5,950,001
C
3,400,001
D
none of the above
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Question 11
Multiple Choice

A change in the market price of an asset will occur as a result of changes in:

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A
investors' required rates of return
B
investors' expected returns from the asset
C
book value of the asset
D
investors' required rates of return and their expected returns from the asset
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Question 12
Multiple Choice

In the constant-growth dividend valuation model, the required rate of return must be ____ the dividend growth rate in order for the formula price to be meaningful.

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A
less than
B
equal to
C
greater than
D
proportional to
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Question 13
Multiple Choice

In the constant-growth dividend valuation model, the required rate of return on a common stock can be shown to be equal to the sum of the dividend yield plus:

Choose correct answer/s
A
Yield-to-maturity
B
Cost of capital
C
Present value yield
D
Price appreciation yield
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Question 14
Multiple Choice

The valuation of common stock is considerably more complicated than the valuation of bonds or preferred stocks because:

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A
The returns can take two forms, i.e. annual cash payments and price appreciation
B
Common stock dividends are normally expected to grow and not remain constant
C
The returns from common stocks are generally larger and more certain than the returns from bonds and preferred stocks
D
The returns can be in annual cash payments or price appreciation, and they are normally expected to grow and not remain constant
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Question 15
Multiple Choice

Many preferred stocks are treated as ____ in determining their values.

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A
Fixed assets
B
Perpetuities
C
Convertible securities
D
Constant growth securities
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Question 16
Multiple Choice

In the valuation of common stock, the simple annuity and perpetuity formulas used in the valuation of bonds and preferred stock are not generally applicable because:

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A
Investors buy common stock for much different reasons than they buy bonds or preferred stock.
B
Returns accruing to common stock should never be capitalized (discounted) in order to determine a price.
C
Unlike bonds and preferred stock, common-stock is a short term investment.
D
Common stock dividends are normally expected to grow over time, rather than being constant as are payments on most bonds and most preferred stock.
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Question 17
Multiple Choice

One of the assumptions of the constant growth dividend valuation model is that

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A
the investor's required rate of return is equal to the expected dividend yield.
B
the required rate of return is greater than the dividend growth rate
C
the required rate of return increases at a constant rate
D
the dividend rate (in dollars) will remain constant
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Question 18
Multiple Choice

The most important factor to be considered in the valuation of a closely held firm is

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A
earnings growth
B
book value of the firm
C
earnings capacity
D
the general economic outlook
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Question 19
Multiple Choice

Stockholders' equity equals

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A
both preferred stock and common equity
B
total claims
C
additional paid-in capital plus capital surplus
D
total liabilities and total surplus
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Question 20
Multiple Choice

A common stock's book value is calculated

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A
as a multiple of the stock's price / earning ratio
B
on the basis of income statement ratios
C
on the basis of balance sheet figures
D
on the value of income statement figures
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