FINANCE CH7

Which of the following is a limitation of the dividend-discount model? Future dividends are difficult to predict with accuracy
The theory that at any given time an asset’s price reflects all we know about that asset is called the __________. Efficient Market Hypothesis
According to the dividend-discount model, which of the following would cause a stock price to fall? A decrease in the growth rate of the dividend
A __________ is a feature that gives common shareholders the option of maintaining their fraction of ownership in the firm. preemptive right
What is the value of a stock that you believe will sell in three years for $67 a share and will pay $3.00 in dividends next year, and grow dividends at 4% in year 2, and 5% in year 3 assuming your required return is 15%? $51.18
One of the assumptions of the constant-growth valuation model is that the growth rate is: less than the required return
Common stock dividends must be __________ before issued. declared by the firm’s board of directors
Seidel Inc. is expected to pay a dividend next year of $1.53. You also expect Seidel to increase its dividend payout by 4% per year. If you require a 12% return to invest in Seidel what is the maximum price you would be willing to pay for the stock? $19.13
The free cash flow valuation model computes the present value of a firm’s expected free cash flows and can be used when firms pay no dividends
The use of the __________ approach to common stock valuation is a superior model since it takes into consideration the firm’s expected earnings. P/E multiple
__________ is a preliminary prospectus on an offering filed as a part of the SEC registration A red herring
Shares of common stock that have been issued but are now held by the firm are known as __________. treasury stock
The total payout model states that the value of a share of stock is equal to the present value of: all future dividends plus share repurchases divided by the number of shares outstanding.
Luke owns 500 shares of KRDB common stock. An election of five directors is taking place. If the company has straight voting rights then Luke has: 500 vote for each person
In the event of bankruptcy which of these groups has first claim on the firm’s assets? Secured creditors
What is the value of a stock if the current dividend is $2, the growth rate is 5%, and the required return is 10%? $42
According to the dividend-discount model, which of the following would cause a stock price to rise? an increase in the growth rate of the dividend
What is the value of a stock that you believe will sell in three years for $81 a share and will pay $3.00 in dividends every year for the three-year period assuming your required return is 10%? $68.32
If a firm increases its dividend payout rate the: firm will have less cash available for new investment
__________ are the total numbers of shares a firm may issue according to its corporate charter. Authorized shares
The free cash flow valuation model computes the present value of a firm’s expected free cash flows and can be used: when firms pay no dividends.

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