Lear
ningGoal
s
1
. Di
ffe
ren
tia
teb
etwe
end
ebta
nde
qui
tyc
api
tal
.
2
. Di
scu
sst
her
igh
ts,
cha
rac
ter
ist
ic
s,a
ndf
eat
ure
sofb
othc
ommo
nan
dpr
efe
rre
dst
ock
.
3
. Des
cri
betheproc
essofi
ssu
ingc o
mmo nst
ock
, i
ncl
udi
ngve
ntu
rec
api
tal
,goi
ngp
ubl
ica
nd
t
heinv
est
me ntb
anker
,andint
erpre
ti
ngst
ockquot
at
ion
s.
4
. Unde
rst
andt
heconc
eptofmar
keteffic i
enc
ya ndbas
icc
ommons
toc
kva
lua
ti
onu
sin
gze
ro
gr
owth,
cons
tan
tgro
wth,andv
aria
bleg
rowt
hmo de
ls.
5
. Di
scusst
hefre
ecashflowval
uat
ionmodela
ndt
heb
ookv
alu
e,l
iqu
ida
ti
onv
alue
,and
pr
ice
/ear
nin
gs(P/
E)mul
ti
ple
sappr
o a
che
s.
6
. Ex
pla
int
her
ela
ti
ons
hipsa
mon
gfin
anc
iald
eci
si
ons
,re
tur
n,r
isk
,andt
hefir
m’sv
alu
e.
Tr
ue/
Fal
se
1
. Hol
dersofe
qui
tyh
avec
lai
mso
nbo
thi
nco
mea
nda
sse
tst
hata
res
eco
nda
ryt
oth
ecl
ai
msof
cr
edi
tors
.
Answer
:TRUE
Lev
elofDiffic ul
ty:1
Lea
rnin
gGo a
l:1
To
pic:Con
tra
sti
ngDebta
ndEq
uit
y
2
. Thet
axde
duct
ibi
li
tyofint
ere
stl
ower
sth
ec os
tofdebtfin
anci
ng,t
her
ebyc
aus
ingt
hec
ost
ofde
btfina
ncingtobelowert
hant
hecos
tofequi
tyfinanc
ing
.
Answer
:TRUE
Lev
elofDiffic ul
ty:3
Lea
rnin
gGo a
l:1
To
pic:Con
tra
sti
ngDebta
ndEq
uit
y
about:blank 1/72
,11/9/24, 9:48 AM Stock-Valuation - testbanks
3
. Pr
efer
redst
ockisaspec
ialf
orm ofs
tockhavi
ngafixedp
eri
odi
cdi
vid
endt
hatmu
stb
epa
id
pr
iort
op a
yme ntofa
nyinte
res
ttoouts
tand
ingbon
ds.
Answer:F
ALSE
Lev
elofDiffic u
lty:1
Lea
rningGoal
:2
To
pic:Feat
ure
sofPre
ferr
edSt
ock
about:blank 2/72
,11/9/24, 9:48 AM Stock-Valuation - testbanks
4
. Cumulati
vepref
err
edstocksarepref
err
edstoc
ksforwhic
ha l
lpas
sed(
unpai
d)div
ide
ndsi
n
ar
rear
smu stbepai
dina ddit
ionals
haresofpr
efe
rreds
tockpri
ort
othepa
yme n
tof
di
vide
nd st
oc ommonstockho l
ders
.
Answer:FALSE
Leve
lofDi ffic ul
ty:1
Lear
ningGo al
:2
Topi
c:Featur
esofPre
ferredStock
5
. Pr
efe
rre
dst
ocki
sof
tenc
ons
ide
redaq
uas
i-d
ebts
inc
eityi
el
dsafix
edp
eri
odi
cpa
yme
nt.
Answer:TRUE
Lev
elofDiffic u
lty:1
Lea
rningGoal
:2
To
pic:Feat
ure
sofPre
ferr
edSt
ock
6
. Theamo untofthecl
aimo fpr
efe
rre
dst
ockh
old
ersi
nli
qui
dat
ioni
sno
rma
ll
yeq
ualt
othe
marke
tv al
ueo fthepr
efer
redst
ock.
Answer:FALSE
Leve
lofDi ffic u
lty:1
Lear
ningGo al
:2
Topi
c:Fe a
tur
eso fPre
ferr
edStoc
k
7
. Cumula
ti
vepref
err
edst
ocksa
repr
efe
rre
dstoc
ksforwh
ichal
lpas
sed(unpai
d)di
v i
dendsi
n
ar
rea
rsmustbepai
dalon
gwitht
hecurr
entdi
vid
endpr
iort
othepay
me ntofdi
vide
nd st
o
co
mmons t
ockhold
ers
.
Answer:F
ALSE
Lev
elofDiffic u
lty:1
Lea
rningGoal
:2
To
pic:Feat
ure
sofPre
ferr
edSt
ock
8
. Bec
aus
epref
err
edst
ocki
safo
rm ofowne
rsh
ipandh
asnomat
urit
yda
te,
itsc
lai
mson
i
ncomeandas
set
sar
esec
ondar
ytoth
oseofthefir
m’scr
edi
tor
s.
Answer:TRUE
Lev
elofDiffic u
lty:2
Lea
rningGoal
:2
To
pic:Feat
ure
sofPre
ferr
edSt
ock
9
. On
ea dva
ntag
eofpr
efe
rre
dst
ockisi
tsabi
li
tytoi
ncr
eas
elev
era
ge,whi
chintu
rnwi
ll
magni
fytheeffe
ctsofi
ncr
eas
edearni
ngsonco
mmo nst
ockh
old
ers
’ret
urn
s.
Answer:TRUE
Lev
elofDiffic u
lty:2
Lea
rningGoal
:2
To
pic:Feat
ure
sofPre
ferr
edSt
ock
about:blank 3/72
, 11/9/24, 9:48 AM Stock-Valuation - testbanks
1
0. Apre f
erredstockhol
derissometi
mesre
ferr
edtoasare
sidua
lowner
,si
ncei
nessenc
eheor
shereceiveswh ati
slef
t—theresi
dua
l—a f
tera
llot
hercl
aimsont
hefir m’
sincomean
d
as
setsh avebeens a
ti
sfie d.
Answe r:FALSE
LevelofDi ffic ul
ty:2
LearningGo al:2
Topi
c :FeaturesofPre
ferr
edStock
1
1. Ac a
llfe a
tureisafeat
urethata
ll
owspref
err
edsto
ckhol
derst
ocha
ngeeachs
hareint
oa
st
ate
dn umb erofshar
esofcommons t
ock.
Answe r:FALSE
LevelofDi ffic ul
ty:2
LearningGo al:2
Topi
c :FeaturesofPre
ferr
edStock
1
2. Thecostofpre
fer
redst
ockfinanci
ngi
sge
ner
all
yhi
ghe
rth
ant
hatofde
btfina
nci
ng.
Answer:TRUE
Leve
lofDi ffic ul
ty:3
Lear
ningGo al
:2
Topi
c:Featur
esofPre
ferr
edSt
ock
1
3. Thecostofpr
efer
redst
ockfina nci
ngisgener
all
yhigherthanthatofde
btfinanci
ngbe
caus
e
unl
iket
h epay
me ntofin
ter
esttobon
dhold
e r
s,t
hepayme ntofdi
videndst
opref
err
ed
st
ockho
l de
rsi
sno tgua
rant
eed,an
dinte
restondeb
tistax-de
d uc
tib
lewh er
easp
ref
err
ed
st
ockdi
v id
endisnot.
Answer:TRUE
Lev
elofDiffic u
lty:3
Lea
rningGoal
:2
To
pic:Feat
ure
sofPre
ferr
edSt
ock
1
4. Thecl
aimsofequ
ityhol
der
so nthefir m’si
ncomecannotbepai
du n
tilth
ecl
aimsofal
l
cr
edit
orsha
vebeensat
is
fie d.But,t
heclai
mso ft
heequ
ityhol
der
sont hefirm’sas
set
sha
ve
pri
ori
tyove
rthecl
aimsofc
redit
orsbeca
u s
etheequi
tyhol
der
saretheown e
rso
fthefirm.
Answer:F
ALSE
Lev
elofDiffic u
lty
:1
Lea
rningGoal
:3
To
pic:Feat
ure
sofCommonSt
ock
1
5. Pree
mp t
iv
eright
sal
lowc
ommonst
ockh
olde
rst
oma
int
ai
nth
eirpr
opo
rti
ona
teo
wne
rshi
pin
thecor
porat
ionwhe
nnewis
sue
sar
emade.
Answer:TRUE
Lev
elofDiffic u
lty
:1
Lea
rningGoal
:3
To
pic:Feat
ure
sofCommonSt
ock
about:blank 4/72
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