Key differences between common stock and bonds include all of the following except. (a) Common stockholders have a voice in management; bondholders do not. (b) Common stockholders have a senior claim on assets and income relative to bondholders. (c) Bonds have a stated maturity but stock does not. (d) Interest paid to bondholders is tax-deductible but dividends paid to stockholders are not.

_________ in the beta coefficient normally causes _________ in the required return
and therefore _________ in the price of the stock, all else remaining the same.
(a) An increase; an increase; an increase
(b) An increase; a decrease; an increase
(c) An increase; an increase; a decrease
(d) A decrease; a decrease; a decrease
Answer: C
Level of Difficulty: 4
Learning Goal: 4
Topic: Risk Return Relationship
62. _________ is the value of the firm’s ownership in the event that all assets are sold for
their exact accounting value and the proceeds remaining after paying all liabilities
(including preferred stock) are divided among common stockholders.
(a) Liquidation value
(b) Book value
(c) The P/E multiple
(d) The present value of the common stock
Answer: B
Level of Difficulty: 1
Learning Goal: 5
Topic: Book Value of Stock
63. _________ is the actual amount each common stockholder would expect to receive if
the firm’s assets are sold, creditors and preferred stockholders are repaid, and any
remaining money is divided among the common stockholders.
(a) Liquidation value
(b) Book value
(c) The P/E multiple
(d) The present value of the dividends
Answer: A
Level of Difficulty: 1
Learning Goal: 5
Topic: Liquidation Value of Stock
64. _________ is a guide to the firm’s value if it is assumed that investors value the
earnings of a given firm in the same way they do the average firm in the industry.
(a) Liquidation value
(b) Book value
(c) The P/E multiple
(d) The present value of the dividends
Answer: C
Level of Difficulty: 1
Learning Goal: 5
Topic: P/E Multiple Valuation Approach
65. The use of which of the following valuation methods, utilized in valuing common
stock, is superior since it considers expected earnings.
(a) liquidation value
(b) book value
(c) P/E multiple
(d) present value of the interest
Answer: C
Level of Difficulty: 2
Learning Goal: 5
Topic: P/E Multiple Valuation Approach
66. The use of the _________ is especially helpful in valuing firms that are not publicly
traded.
(a) liquidation value
(b) book value
(c) P/E multiple
(d) present value of the dividends
Answer: C
Level of Difficulty: 2
Learning Goal: 5
Topic: P/E Multiple Valuation Approach
67. The current price of DEF Corporation stock is $26.50 per share. Earnings next year
should be $2 per share and it should pay a $1 dividend. The P/E multiple is 15 times on
average. What price would you expect for DEF’s stock in the future?
(a) $13.50
(b) $15.00
(c) $26.50
(d) $30.00
Answer: D
Level of Difficulty: 3
Learning Goal: 5
Topic: P/E Multiple Valuation Approach
68. Which of the following terms typically applies to common stock but not to preferred
stock?
(a) Par value.
(b) Dividend yield.
(c) Legally considered as equity in the firm.
(d) Voting rights.
Answer: D
Level of Difficulty: 2
Learning Goal: 1
Topic: Contrasting Common and Preferred Stock
69. Key differences between common stock and bonds include all of the following except.
(a) Common stockholders have a voice in management; bondholders do not.
(b) Common stockholders have a senior claim on assets and income relative to
bondholders.
(c) Bonds have a stated maturity but stock does not.
(d) Interest paid to bondholders is tax-deductible but dividends paid to stockholders are
not.
Answer: B
Level of Difficulty: 3
Learning Goal: 1
Topic: Contrasting Common Stock and Bonds
70. Key differences between common stock and bonds include all of the following except.
(a) Common stockholders have a voice in management; bondholders do not.
(b) Common stockholders have a junior claim on assets and income relative to
bondholders.
(c) Bonds have a stated maturity but stock does not.
(d) Dividends paid to bondholders are tax-deductible but interest paid to stockholders
is not.
Answer: D
Level of Difficulty: 3
Learning Goal: 1
Topic: Contrasting Common Stock and Bonds