FINAL EXAM MGT 5002

MULTIPLE CHOICE CHAPTER 9

(9-5) Required return
1). If in the
opinion of a given investor a stocks expected return exceeds its
required return, this suggests that the investor thinks

a. the stock is
experiencing supernormal growth.
b. the stock should be
sold.
c. the stock is a good buy.
d. management is probably
not trying to maximize the price per share.
e. dividends are not likely
to be declared.

(9-1) Preemptive right
2). The preemptive
right is important to shareholders
because it

a. allows managers to buy additional shares below the current market
price.
b. will result in higher
dividends per share.
c. is included in every
corporate charter.
d. protects the current
shareholders against a dilution of their ownership interests.
e. protects bondholders,
and thus enables the firm to issue debt with a relatively low interest rate.

(9-2) Classified stock
3). Companies can
issue different classes of common stock.
Which of the following statements concerning stock classes is CORRECT?

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.

(9-5) Constant growth
model
4). If a stocks
dividend is expected to grow at a
constant rate of 5% a year, which of the following statements is CORRECT? The
stock is in equilibrium.

a. The expected return on the stock is 5% a year.
b. The stocks dividend yield
is 5%.
c. The price of the stock is expected to decline in the future.
d. The stocks required return
must be equal to or less than 5%.
e. The stocks price one year
from now is expected to be 5% above the current price.

(9-7) Corporate valuation
model
5). Which of the
following statements is CORRECT?

a. To implement the corporate valuation model, we discount projected
free cash flows at the weighted
average cost of capital.
b. To implement the corporate valuation model, we discount net
operating profit after taxes (NOPAT) at the weighted average cost of capital.
c. To implement the corporate valuation model, we discount projected
net income at the weighted average cost of capital.
d. To implement the corporate valuation model, we discount projected
free cash flows at the cost of equity capital.
e. The corporate valuation
model requires the assumption of a constant growth rate in all years.