A) $40.17
B) $41.20
C) $42.26
D) $43.34
E) $44.46
G) A) and C)
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A) $2.20
B) $2.44
C) $2.69
D) $2.96
E) $3.25
G) A) and C)
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A) $37.52
B) $39.40
C) $41.37
D) $43.44
E) $45.61
G) A) and B)
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A) A major disadvantage of financing with preferred stock is that preferred stockholders typically have supernormal voting rights.
B) Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm's common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock.
C) The preemptive right is a provision in all corporate charters that gives preferred stockholders the right to purchase (on a pro rata basis) new issues of preferred stock.
D) One of the disadvantages to a corporation of owning preferred stock is that 70% of the dividends received represent taxable income to the corporate recipient, whereas interest income earned on bonds would be tax free.
E) One of the advantages to financing with preferred stock is that 70% of the dividends paid out are tax deductible to the issuer.
G) B) and C)
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A) The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.
B) The corporate valuation model discounts free cash flows by the required return on equity.
C) The corporate valuation model can be used to find the value of a division.
D) An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.
E) Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.
G) B) and E)
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A) The two stocks should have the same expected dividend.
B) The two stocks could not be in equilibrium with the numbers given in the question.
C) A's expected dividend is $0.50.
D) B's expected dividend is $0.75.
E) A's expected dividend is $0.75 and B's expected dividend is $1.20.
G) B) and D)
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A) Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation.
B) The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.
C) Corporations cannot buy the preferred stocks of other corporations.
D) Preferred dividends are not generally cumulative.
E) A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation.
G) All of the above
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B) False
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B) False
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A) $386
B) $406
C) $428
D) $450
E) $473
G) All of the above
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B) False
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A) 4.42%
B) 4.66%
C) 4.89%
D) 5.13%
E) 5.39%
G) A) and B)
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A) $12.00
B) $12.64
C) $13.30
D) $14.00
E) $14.70
G) C) and D)
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A) The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
B) Two firms with the same expected dividend and growth rate must also have the same stock price.
C) It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
D) If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.
E) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
G) A) and B)
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B) False
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A) All common stocks fall into one of three classes: A, B, and C.
B) All common stocks, regardless of class, must have the same voting rights.
C) All firms have several classes of common stock.
D) All common stock, regardless of class, must pay the same dividend.
E) Some class or classes of common stock are entitled to more votes per share than other classes.
G) None of the above
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B) False
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A) Stock A's expected dividend at t = 1 is only half that of Stock B.
B) Stock A has a higher dividend yield than Stock B.
C) Currently the two stocks have the same price, but over time Stock B's price will pass that of A.
D) Since Stock A's growth rate is twice that of Stock B, Stock A's future dividends will always be twice as high as Stock B's.
E) The two stocks should not sell at the same price. If their prices are equal, then a disequilibrium must exist.
G) None of the above
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A) The company's current stock price is $20.
B) The company's dividend yield 5 years from now is expected to be 10%.
C) The constant growth model cannot be used because the growth rate is negative.
D) The company's expected capital gains yield is 5%.
E) The company's expected stock price at the beginning of next year is $9.50.
G) A) and E)
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A) If Stock A has a lower dividend yield than Stock B, its expected capital gains yield must be higher than Stock B's.
B) Stock B must have a higher dividend yield than Stock A.
C) Stock A must have a higher dividend yield than Stock B.
D) If Stock A has a higher dividend yield than Stock B, its expected capital gains yield must be lower than Stock B's.
E) Stock A must have both a higher dividend yield and a higher capital gains yield than Stock B.
G) C) and D)
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