Question: A firm has an EPS of $2.56, a benchmark PE of 12.1, and an earnings growth rate of 1.9 percent. What is the target share price 4 years from now?

Answer Options:
$51.00
$17.57
$34.03
$33.40
$30.98

Answer: D — $33.40

Question: A firm has 38,400 shares outstanding and uses cumulative voting. The firm grants one vote for each share of common stock. What is the minimum number of votes required to obtain a seat on the board of directors if there are three open seats?

Answer Options:
12,800
9,600
12,801
9,601
19,201

Answer: D — 9,601

Question: A firm has 900,000 shares outstanding, which are trading for $12.41 per share. Using the firm’s required rate of return of 17 percent, a project has an NPV of $241,000. All else constant, if the project is accepted, the stock price per share would be expected to:

Answer Options:
fall to $12.14
rise to $12.68
rise to $12.64
rise to $12.92
fall to $12.18

Answer: B — rise to $12.68

Question: Which one of the following rights is never directly granted to common shareholders of a publicly held corporation? The right to:

Answer Options:
vote on a proposed merger
elect the board of directors
determine the amount of the cash dividend
inspect corporate records as permitted by law
receive dividends if declared

Answer: C — determine the amount of the cash dividend

Question: A corporation uses cumulative voting and is electing two directors. Under cumulative voting, a shareholder is more likely to gain a seat by:

Answer Options:
splitting votes equally across all candidates
concentrating votes on one candidate
abstaining from voting
using straight voting procedures
waiting for the annual meeting to end

Answer: B — concentrating votes on one candidate

Question: Under straight voting, the minimum percentage ownership generally needed to guarantee control of the election outcome is:

Answer Options:
25 percent plus one vote
33 percent plus one vote
40 percent plus one vote
50 percent plus one vote
51 percent exactly

Answer: D — 50 percent plus one vote

Question: An attempt by dissatisfied shareholders to gain control of the board of directors is called a:

Answer Options:
rights offering
proxy fight
shelf registration
hostile indenture
poison put

Answer: B — proxy fight

Question: Preferred shareholders are most likely to have the right to:

Answer Options:
receive dividends before common shareholders
elect all corporate directors
receive all residual income after common shareholders
vote on all operating decisions
appoint the chief financial officer

Answer: A — receive dividends before common shareholders

Question: Which one of the following transactions occurs in the primary market?

Answer Options:
Purchase of Microsoft stock from another investor
Sale of outstanding stock on Nasdaq
Purchase of newly issued shares from the issuer
Gift of stock from one individual to another
Sale of bonds by one dealer to another

Answer: C — Purchase of newly issued shares from the issuer

Question: Nasdaq is best described as a:

Answer Options:
physical exchange with designated trading posts
market for Treasury securities only
computer network of securities dealers
market where only newly issued securities trade
market for private equity only

Answer: C — computer network of securities dealers

Question: A firm just paid a dividend of $1.84 per share. Dividends are expected to grow at 3.6 percent indefinitely, and the required return is 10.2 percent. What is the current stock price?

Answer Options:
$26.13
$30.42
$28.88
$35.66
$33.16

Answer: C — $28.88