Common Stock: Characteristics, Valuation, And Issuance

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Questions Bank

The Role and Objective of Financial Management
The Domestic and International Financial Marketplace
Evaluation of Financial Performance
Financial Planning and Forecasting
The Time Value of Money
Fixed Income Securities: Characteristics and Valuation
Common Stock: Characteristics, Valuation, and Issuance
Analysis of Risk and Return
Capital Budgeting and Cash Flow Analysis
Capital Budgeting: Decision Criteria and Real Option Considerations
Capital Budgeting and Risk
The Cost of Capital
Capital Structure Concepts
Capital Structure Management in Practice
Dividend Policy
Working Capital Policy and Short-term Financing
The Management of Cash and Marketable Securities
Management of Accounts Receivable and Inventories
Lease and Intermediate-term Financing
Financing With Derivatives
Risk Management
International Financial Management
Corporate Restructuring
Appendix: Continuous Compounding and Discounting
Appendix: Mutually Exclusive Investments Having Unequal Lives
Appendix: Breakeven Analysis
Appendix: Bond Refunding Analysis
Appendix: Taxes

All Questions

Question 1

Free

Multiple Choice

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

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has no maturity date

considered a permanent form of long-term financing

has claims on assets prior to those of preferred stock

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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Common stock at par

Treasury stock

Contributed capital in excess of par

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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market value of common stock

total assets

total stockholders' equity plus preferred stock

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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the firm's future earnings

book value

total assets

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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voting rights

management rights

asset rights

dividend rights

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Question 6

Multiple Choice

The book value of an asset represents

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the market value

the discounted cash flow value

the historic acquisition cost of the asset

stockholders' acquisition value

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Question 7

Multiple Choice

From an accounting standpoint, when a stock is split

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the number of shares outstanding does not change

the firms' account balances are changed

its par value is changed

retained earnings will change

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Question 8

Multiple Choice

In a reverse stock split

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the number of shares are decreased

the market value is decreased

retained earnings decrease

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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no fixed dividend obligation

can lower the firm's weighted cost of capital

allows the firm a greater degree of flexibility in financial planning

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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850,001

5,950,001

3,400,001

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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investors' required rates of return

investors' expected returns from the asset

book value of the asset

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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less than

equal to

greater than

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:

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Yield-to-maturity

Cost of capital

Present value yield

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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The returns can take two forms, i.e. annual cash payments and price appreciation

Common stock dividends are normally expected to grow and not remain constant

The returns from common stocks are generally larger and more certain than the returns from bonds and preferred stocks

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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Fixed assets

Perpetuities

Convertible securities

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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Investors buy common stock for much different reasons than they buy bonds or preferred stock.

Returns accruing to common stock should never be capitalized (discounted) in order to determine a price.

Unlike bonds and preferred stock, common-stock is a short term investment.

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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the investor's required rate of return is equal to the expected dividend yield.

the required rate of return is greater than the dividend growth rate

the required rate of return increases at a constant rate

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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earnings growth

book value of the firm

earnings capacity

the general economic outlook

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Question 19

Multiple Choice

Stockholders' equity equals

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both preferred stock and common equity

total claims

additional paid-in capital plus capital surplus

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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as a multiple of the stock's price / earning ratio

on the basis of income statement ratios

on the basis of balance sheet figures

on the value of income statement figures

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