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Question
Which of the following statements is CORRECT?
a. The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
b. The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
c. The free cash flow valuation model, Vops =FCF1/(WACC - g), cannot be used for firms that have negative growth rates.
d. The free cash flow valuation model, Vops = FCF1/(WACC - g), can be used only for firms whose growth rates exceed their WACC.
e. If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.
Answer
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You are given the following returns on "the market" and Stock F during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 - beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.) Year Market Stock F1 6.10% 6.50%2 12.90% -3.70%3 16.20% 21.71%a. 7.89b. 8.30c. 8.74d. 9.20e. 9.66
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In a portfolio of three different stocks, which of the following could NOT be true?
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Suppose that you're planning a vacation and borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discounted loan). Also, assume that the bank requires you to maintain a compensating balance equal to 20 percent of the initial loan value. What effective annual interest rate are you being charged?a. 14.00%b. 8.57%c. 16.28%d. 21.21%e. 28.00%
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Which of the following is not correct for a firm with seasonal sales and customers who all pay promptly at the end of 30 days?
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b. The level of accounts receivable will be constant from month to month.
c. The ratio of accounts receivable to sales will vary from month to month.
d. The level of accounts receivable at the end of each quarter will be the same.
e. DSO will vary from month to month.
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DSO analysis of accounts receivable is the most robust way to see if customers are, on average, paying more slowly, because it is unaffected by seasonal changes in sales.
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b. False