Answer:
Options for Question 2:
Question: Managers always attempt to maximize the long-run value of their firms’ stocks, or the stocks’ intrinsic values. This is exactly what stockholders desire. Thus, conflicts between stockholders and managers are not possible.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: Free cash flow (FCF) is, essentially, the cash flow that is available for interest and dividends after the company has made the investments in current and fixed assets that are necessary to sustain ongoing operations.
Answer:
Options:
Question: Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to encourage the use of debt financing by corporations.
Answer:
Options:
Question: A proxy is a document giving one party the authority to act for another party, including the power to vote shares of common stock. Proxies can be important tools relating to control of firms.
Answer:
Options for Question 1:
Question: The term “marginal investor” means an investor who is active in the market and would tend to buy a stock if its price fell and sell it if it rose, barring any new information coming out about the stock. It is the “marginal investor” who determines the actual stock price.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: The corporate valuation model can be used only when a company doesn’t pay dividends.
Answer:
Options for Question 12:
Question: A stock’s market price would equal its intrinsic value if all investors had all the information that is available about the stock. In this case the stock’s market price would equal its intrinsic value.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Brown Fashions Inc.’s December 31, 2014, balance sheet showed total common equity of $4,050,000 and 200,000 shares of stock outstanding. During 2014, the firm had $450,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/14, assuming no common stock was either issued or retired during 2014?
Answer:
Options:
Question: If a stock’s intrinsic value is greater than its market price, then the stock is overvalued and should be sold.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don’t want to relinquish voting control.
Answer:
Options for Question 4:
Question: If a stock’s market price is above its intrinsic value, then the stock can be thought of as being undervalued, and it would be a good buy.
Answer Choices:
a. True
b. False
Answer:
b. False
Question: If someone deliberately understates costs and thereby increases profits, this can cause the stock price to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.
Answer Choices:
a. True
b. False
Answer:
a. True
Question: Which of the following statements is CORRECT?
Answer Choices:
a. The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically.
b. An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift.
c. Capital market instruments include both long-term debt and common stocks.
d. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction.
e. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.
Answer:
c. Capital market instruments include both long-term debt and common stocks.
Question: The corporate valuation model cannot be used unless a company pays dividends.
Answer:
Options for Question 13: