The preemptive right gives the shareholder the right (a) of one vote for each share owned. (b) to give up their vote to another party. (c) to maintain their proportionate ownership in the corporation when new common stock is issued. (d) to sell their share of stock at a premium.

The preemptive right gives the shareholder the right
(a) of one vote for each share owned.
(b) to give up their vote to another party.
(c) to maintain their proportionate ownership in the corporation when new common
stock is issued.
(d) to sell their share of stock at a premium.
Answer: C
Level of Difficulty: 3
Learning Goal: 3
Topic: Features of Common Stock
42. The investment banker does all of the following EXCEPT
(a) make long-term investments for banking institutions.
(b) bear the risk of selling a security issue.
(c) act as a middleman between the issuer and buyer of a new security.
(d) advise clients.
Answer: A
Level of Difficulty: 3
Learning Goal: 3
Topic: Investment Banking
43. A firm has the balance sheet accounts, common stock, and paid-in capital in excess of
par, with values of $10,000 and $250,000, respectively. The firm has 10,000 common
shares outstanding. If the firm had a par value of $1, the stock originally sold for
(a) $24/share.
(b) $25/share.
(c) $26/share.
(d) $30/share.
Answer: C
Level of Difficulty: 4
Learning Goal: 3
Topic: Accounting for Common Stock
44. A firm has the balance sheet accounts, common stock, and paid-in capital in excess of
par, with values of $40,000 and $500,000, respectively. The firm has 40,000 common
shares outstanding. If the firm had a par value of $1, the stock originally sold for
(a) $11.50/share.
(b) $12.50/share.
(c) $13.50/share.
(d) $15.50/share.
Answer: C
Level of Difficulty: 4
Learning Goal: 3
Topic: Accounting for Common Stock
45. All of the following are true about the issuance of non-voting common stock EXCEPT
(a) it has been issued as a defense against an unfriendly takeover.
(b) it has been issued when the corporation wishes to raise capital through the sale of
common stock, but does not want to relinquish its voting control.
(c) it tends to result in unequal voting rights among the shareholders.
(d) it tends to result in the dilution of voting rights of current stockholders.
Answer: D
Level of Difficulty: 4
Learning Goal: 3
Topic: Common Stock Voting
46. Preferred stock is valued as if it were a
(a) fixed-income obligation.
(b) bond.
(c) perpetuity.
(d) common stock.
Answer: C
Level of Difficulty: 1
Learning Goal: 4
Topic: Preferred Stock Valuation
47. A firm has an issue of preferred stock outstanding that has a stated annual dividend of
$4. The required return on the preferred stock has been estimated to be 16 percent. The
value of the preferred stock is _________.
(a) $64
(b) $16
(c) $25
(d) $50
Answer: C
Level of Difficulty: 2
Learning Goal: 4
Topic: Preferred Stock Valuation (Equation 7.3)
48. A firm has an expected dividend next year of $1.20 per share, a zero growth rate of
dividends, and a required return of 10 percent. The value of a share of the firm’s
common stock is _________.
(a) $120
(b) $10
(c) $12
(d) $100
Answer: C
Level of Difficulty: 2
Learning Goal: 4
Topic: Zero Growth Valuation Model (Equation 7.3)
49. A firm has an issue of preferred stock outstanding that has a stated annual dividend of
$4. The required return on the preferred stock has been estimated to be 16 percent. The
value of the preferred stock is _________.
(a) $64
(b) $16
(c) $25
(d) $50
Answer: C
Level of Difficulty: 2
Learning Goal: 4
Topic: Preferred Stock Valuation (Equation 7.3)
50. The _________ is utilized to value preferred stock.
(a) constant growth model
(b) variable growth model
(c) zero-growth model
(d) Gordon model
Answer: C
Level of Difficulty: 2
Learning Goal: 4
Topic: Preferred Stock Valuation