chapter 7

1) A stockholderʹs ownership of a companyʹs stock gives her the right to

• A) vote and be the primary claimant of all cash flows.

• B) vote and be the residual claimant of all cash flows.

• C) manage and assume responsibility for all liabilities.

• D) vote and assume responsibility for all liabilities.

2) Stockholders are residual claimants, meaning that they

• A) have the first priority claim on all of a companyʹs assets.

• B) are liable for all of a companyʹs debts.

• C) will never share in a companyʹs profits.

• D) receive the remaining cash flow after all other claims are paid.

3) Periodic payments of net earnings to shareholders are known as

• A) capital gains.

• B) dividends.

• C) profits.

• D) interest

4) The value of any investment is found by computing the

• A) present value of all future sales

• B) present value of all future liabilities.

• C) future value of all future expenses.

• D) present value of all future cash flows.

5) In the one-period valuation model, the value of a share of stock today depends upon

• A) the present value of both dividends and the expected sales price.

• B) only the present value of the future dividends.

• C) the actual value of the dividends and expected sales price received in one year

• D) the future value of dividends and the actual sales price.

6) In the one-period valuation model, the current stock price increases if

• A) the expected sales price increases.

• B) the expected sales price falls.

• C) the required return increases.

• D) dividends are cut.

7) In the one-period valuation model, an increase in the required return on investments in equity

• A) increases the expected sales price of a stock.

• B) increases the current price of a stock.

• C) reduces the expected sales price of a stock

• D) reduces the current price of a stock

8) Using the one-period valuation model, assuming a year-end dividend of $0.11, an expected sales price of $110, and a required rate of return of 10%, the current price of the stock would be

• A) $110.11

• B) $121.12.

• C) $100.10.

• D) $100.11

9) Using the one-period valuation model, assuming a year-end dividend of $1.00, an expected sales price of $100, and a required rate of return of 5%, the current price of the stock would be

• A) $110.00

• B) $101.00.

• C) $100.00.

• D) $96.19

10) In the generalized dividend model, if the expected sales price is in the distant future

• A) it does not affect the current stock price

• B) it is more important than dividends in determining the current stock price

• C) it is equally important with dividends in determining the current stock price

• D) it is less important than dividends but still affects the current stock price.