1. The cash flows from owning a share of stock come in the form of... 2. As the owner of shares of common stock in a cor- poration, you have various rights, including: 3. Voting in corporate elec- tions can be either: future dividends. the right to vote to elect corporate directors. 1. Cumul...
Business Finance Exam 2 Notes (Chapter 7)
Study online at https://quizlet.com/_4l1jqc
1. The cash flows from
future dividends.
owning a share of stock
come in the form of...
2. As the owner of shares of
the right to vote to elect corporate
common stock in a cor-
poration, you have directors.
various rights, including:
3. Voting in corporate
elec- tions can be
either: 1. Cumulative
2. Straight
4. Most voting is done by... proxy.
5. Proxy battles... break out when competing sides try to
gain
enough votes to have their candidates
for the board elected.
Someone seeks after a bunch of
investors' proxy votes so they can
take control of the project
6. In addition to common preferred stock.
stock, some
corporations have
issued...
be paid first, before common
7. Preferred stockholders can receive anything.
stockholders must...
8. Preferred stock has a... fixed dividend.
9. The two biggest stock 10.Why does the value of a share of stock
mar- kets in the United depend on dividends?
States
1/
, Business Finance Exam 2 Notes (Chapter 7)
Study online at https://quizlet.com/_4l1jqc
N
Y
S
E
N
A
S
D
A
Q
The value of any
investment depends on
its cash flows; i.e., what
investors will actually
receive. The
cash flows from a share
of stock are the divi-
dends.
2/
, Business Finance Exam 2 Notes (Chapter
7)
11.A substantial percentage Investors believe the company will
of the companies listed on eventually start paying dividends (or
the NYSE and the NAS- be sold to another company).
DAQ don't pay dividends,
but investors are nonethe-
less willing to buy shares
in them. How is this possi-
ble given your answer to
the previous question?
12.Referring to the previous In general, companies that need the
questions, under what cir- cash will often forgo dividends since
cumstances might a dividends are a cash expense.Young,
compa- ny choose not to growing companies with profitable
pay divi- dends? investment opportunities are one ex-
ample; another example is a company
in fi- nancial distress. This question is
examined in depth in a later chapter.
13.Under what two assump-
tions can we use the divi- The general method for valuing a share
dend growth model of stock is to find the present value of
present- ed in the chapter all ex- pected future dividends. The
to deter- mine the value of dividend growth model presented in
a share the text is only valid (i) if dividends are
of stock? Comment on the expected to occur forever; that is, the
reasonableness of these stock provides dividends in perpetuity,
as- sumptions.
and (ii) if a constant growth rate of
dividends occurs forever. A violation of
the first assump- tion might be a
company that is expected to cease
operations and dissolve itself some fi-
nite number of years from now. The
stock of such a company would be
valued by the meth- ods of this chapter
by applying the general method of
valuation. A violation of the second
assumption might be a start-up firm
that isn't currently paying any
dividends, but is expected to eventually
3/
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