chapter-08-stock-valuation-8

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41. Hardy Lumber has a capital structure which
includes bonds, preferred stock, and common stock.
Which of the following rights have most likely been granted to the preferred
shareholders?
I. right to share in company profits prior to other shareholders
II. right to elect the corporate directors
III. right to vote on proposed mergers
IV. right to all residual income after the common dividends have been
paid
A. I only
B. I and III only
C. I and IV only
D. II, III, and IV only
E. I, II, III, and IV

42. Boston Free Press has a dividend policy whereby
the firm pays a constant annual dividend of $2.40 per share of common stock.
The firm has 1,000 shares of stock outstanding. The company:
A. must always show a current liability of $2,400, ($2.40´ 1,000), for
dividends payable.
B. must still declare each dividend before it becomes an actual company
liability.
C. is obligated to pay $2.40 per share each year in perpetuity.
D. will be declared in default if it does not pay at least $2.40 per share
per year on a timely basis.
E. has a liability that must be paid at a later date should the company
miss paying an annual dividend payment.

43. Which one of the following statements related to
corporate dividends is correct?
A. Dividends are nontaxable income to shareholders.
B. Dividends reduce the taxable income of the corporation.
C. The Chief Executive Officer of a corporation is responsible for
declaring dividends.
D. The Chief Financial Officer of a corporation determines the amount of
dividend to be paid.
E. Corporate shareholders may receive a tax break on a portion of their
dividend income.

44. Which one of these statements related to preferred
stock is correct?
A. Preferred shareholders normally receive one vote per share of stock
owned.
B. Preferred shareholders determine the outcome of any election that
involves a proxy fight.
C. Preferred shareholders are considered to be the residual owners of a
corporation.
D. Preferred stock normally has a stated liquidating value of $1,000 per
share.
E. Cumulative preferred shares are more valuable than comparable
non-cumulative shares.

45. You own one share of a cumulative preferred stock
which pays quarterly dividends. The firm has recently suffered some financial
setbacks and has failed to pay the last two dividends. However, new funding has
been arranged and the firm intends to restore all dividends, both common and
preferred, this quarter. As a preferred shareholder, you should expect to receive
the equivalent of ____ quarter(s) of dividends when the next dividend is
paid.
A. 0
B. 1
C. 2
D. 3
E. either 1, 2, or 3

46. Which of the following features do preferred
shareholders and bondholders frequently have in common?
I. lack of voting rights
II. conversion option into common stock
III. annuity payments
IV. fixed liquidation value
A. I and II only
B. III and IV only
C. II, III, and IV only
D. I, III, and IV only
E. I, II, III, and IV

47. Which of the following apply to a specialist who
trades on the floor of the NYSE?
I. provides liquidity for an individual security
II. partially being replaced by SuperDOT
III. pays an annual fee for a trading license
IV. acts as a dealer
A. I and III only
B. II and IV only
C. I, III, and IV only
D. II, III, and IV only
E. I, II, III, and IV

48. Which one of the following statements related to
the NYSE is correct?
A. Commission brokers work on behalf of brokerage firm clients.
B. Shareholders of NYSE Group, Inc. own “seats” on the exchange.
C. Specialists buy at the asked price.
D. The NYSE is primarily a dealer’s market.
E. Floor brokers earn income in the form of a bid-ask spread.

49. Which one of the following transactions occurs in
the primary market?
A. purchase of 500 shares of GE stock from a current shareholder
B. gift of 100 shares of stock to a charitable organization
C. gift of 200 shares of stock by a mother to her daughter
D. a purchase of newly issued stock from AT&T
E. IBM’s purchase of GE stock

50. Which one of the following statements currently
applies to a NYSE broker?
A. owns a “seat” on the exchange
B. buys at the bid price
C. remains at his or her specified post
D. matches customer buy and sell orders
E. trades for his or her personal account

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