finance data bank

101. The free cash flow valuation model can be used to determines the value of an entire company as the present value of its expected free cash flows discounted at the firm's weighted average cost of capital

102. A common stockholder has no guarantee of receiving any cash inflows, but receives what is left after all other claims on the firm's income and assets have been satisfied.

103. Preferred stock that provides for dividend payments based on certain formulas allowing preferred stockholders to participate with common stockholders in the receipt of dividends beyond a specified amount is called cumulative preferred stock.

104. Preemptive rights allow existing shareholders to maintain voting control and protect against the dilution of their ownership.

105. American Depositary Receipts (ADRs) are claims issued by U.S. banks representing ownership of shares of a foreign company's stock held on deposit by the U.S. bank in the foreign market and issued in dollars to U.S. investors.

106. Treasury stock generally does not have voting rights, does not earn dividends, and does not have a claim on assets in liquidation.

107. The ________ are sometimes referred to as the residual owners of the corporation.

A) preferred stockholders

B) unsecured creditors

C) common stockholders

D) secured creditors

108. Treasury stock results from the

A) firm selling stock for greater than its par value.

B) cumulative feature on preferred stock.

C) repurchase of outstanding stock.

D) authorization of additional shares of stock by the board of directors.

109. The purpose of nonvoting common stock is to

A) limit the voting power of the management.

B) allow the minority interest to elect one director.

C) raise capital without giving up any voting rights.

D) give preference on distribution of earnings to those shareholders who own the stock.

110. A proxy statement gives the shareholder the right

A) of one vote for each share owned.

B) to give up their vote to another party.

C) to maintain their proportionate ownership in the corporation when new common stock is issued.

D) to sell their share of stock at a premium.

111. A firm issued 5,000 shares of $1 par-value common stock, receiving proceeds of $20 per share. The accounting entry for the paid-in capital in excess of par account is

A) $5,000.

B) $ 95,000.

C) $100,000.

D) $0.

112. A firm issued 10,000 shares of $2 par-value common stock, receiving proceeds of $40 per share. The accounting entry for the paid-in capital in excess of par account is

A) $200,000.

B) $380,000.

C) $400,000.

D) $800,000.

113. A firm has the balance sheet accounts, common stock, and paid-in capital in excess of par, with values of $10,000 and $250,000, respectively. The firm has 10,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold for

A) $24/share.

B) $25/share.

C) $26/share.

D) $30/share.

114. A firm has the balance sheet accounts, common stock, and paid-in capital in excess of par, with values of $40,000 and $500,000, respectively. The firm has 40,000 common shares outstanding. If the firm had a par value of $1, the stock originally sold for

A) $11.50/share.

B) $12.50/share.

C) $13.50/share.

D) $15.50/share.

Table 7.1

115. According to Table 7.1, Ford's common stock must have closed at ________ per share on the previous trading day.

A) $29.64

B) $30.76

C) $30.99

D) $31.55

116. According to Table 7.1, the expected dividend per share for Ford is

A) $0.25.

B)$1.00.

C) $2.00.

D) $3.30.

117. Referring to Table 7.1, if we assume that Ford's dividends will grow at a rate of 10 percent forever, the required return on Ford's stock would be

A) 7.4%.

B) 8.9%.

C) 11.0%.

D) 13.6%

118. Based on Table 7.1, Ford's earnings per share are

A) $0.80.

B) $1.21.

C) $1.68.

D) $1.91.

119. Based on the information given in Table 7.1, the number of shares of Ford that were traded on the previous day was

A) 2,092.

B) 20,925.

C) 209,250.

D) 2,092,500.

120. In an efficient market, the expected return and the required return are equal.

121. To a buyer, an asset's value represents the minimum price that he or she would pay to acquire it.

122. If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

123. If the expected return were above the required return, investors would buy the asset, driving its price up and its expected return down.

124. Efficient market hypothesis is the theory describing the behavior of an assumed "perfect" market in which securities are typically in equilibrium, security prices fully reflect all public information available and react swiftly to new information, and, because stocks are fairly priced, investors need not waste time looking for mispriced securities.

125. In an efficient market, stock prices adjust quickly to new public information.

126. In an inefficient market, stock prices adjust quickly to new public information.

127. In an inefficient market, securities are typically in equilibrium, which means that they are fairly priced and that their expected returns equal their required returns.

128. A firm has an expected dividend next year of $1.20 per share, a zero growth rate of dividends, and a required return of 10 percent. The value of a share of the firm's common stock is ________.

A) $120

B) $10

C) $12

D) $100

129. A firm has an issue of preferred stock outstanding that has a par value of $100 and a 4% dividend. If the current market price of the preferred stock is $50, the yield on the preferred stock is ________.

A) 4.00%

B) 6.00%

C) 8.00%

D) none of the above

130. The ________ is utilized to value preferred stock.

A) constant growth model

B) variable growth model

C) zero-growth model

D) Gordon model