Wiley & Jose's Corporation currently pays a 1.50 common stock dividend. Dividends are expected to grow at a 3 rate into the foreseeable future. What is the value of Wiley & Jose's common stock to an investor requiring a 14 rate of return?
A) 11.04
B) 51.50
C) 13.64
D) 14.05
Why is common stock financing lower risk to the firm than financing with bonds?
A) The lack of a fixed dividend provides the firm greater flexibility versus the interest cost of a bond.
B) Common stock typically has a shorter maturity than bonds.
C) Although common stock dividends are typically fixed, they are usually lower than the interest on bonds.
D) The sinking fund feature on common stock lowers its risk.
Why do investors require a higher expected rate of return on common stock than on bonds?
A) Common stock is a riskier investment than bonds.
B) Common stock is a lower risk investment than bonds.
C) Common stock has a shorter maturity than bonds.
D) Dividends are considered taxable income, but interest is not.
Which of the following is true the longer a common stock investor's expected holding period?
A) The current value of the common stock is greater.
B) The current value of the common stock is lower.
C) The investor's holding period has no impact on the current value of common stock.
D) None of the above.
Which of the following is true for corporate stockholders?
A) They elect the chief executive officer.
B) They elect the board of directors.
C) They determine the dividend through a ballot to each stockholder.
D) They determine the maturity through a ballot to each stockholder.
Which of the following is not a defining feature of common stock?
A) a residual claim on assets
B) voting rights
C) a residual claim on cash flows
D) a fixed return
Into which two parts is a firm's earnings divided?
A) dividends and debt repayments
B) dividends and tax payments
C) dividends and addition to retained earnings
D) dividends and interest payments
Everything else being the same, the greater an investor's required rate of return, what is true of the value of common stock?
A) It is worth more.
B) It is worth less.
C) The impact on value could be up or down.
D) The value will not change.
If a corporation has two classes of common stock, what is typically unique about the second or class B common stock?
A) It has superior voting rights.
B) It has inferior dividend payments.
C) It has no voting rights.
D) It has superior dividend payments.
Why is valuing common stock more difficult than valuing bonds?
A) Common stock is a long-term security and a bond is a short-term security.
B) Because bonds have more seniority than common stocks.
C) Because common stock is less risky to the investor than a bond.
D) It is more difficult to forecast future common stock cash flows than bond cash flow.
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