Chapter 5 - Financial investment

Because common shareholders are entitled to the profits that remain after all of a corporation's other obligations have been met, common shareholders are known as

• residual owners.

• temporary owners.

• debt owners.

• owners of last resort

If stocks earn an average rate of return of 12 %, their value doubles every

• 4 years

• 6 years

• 8 years

• 12 years

Which one of the following statements about common stock is true?

• Common stock can provide attractive capital appreciation opportunities.

• Dividends generally provide the greatest rate of return on common stocks.

• Common stocks generally have a negative rate of return over a ten-year period.

• The DJIA is the best indicator of the overall performance of common stocks.

  Answer:  A

For the period 2000 through 2009, the average annual price change for stocks in the S&P 500 index was

• 16%.

• 8%.

• -1%.

• ) -50%.

Shareholders must either exercise their rights granted via a rights offering or let them expire unused.

• True

• False

) Stock held in treasury is a means of increasing the number of shares outstanding.

• True

• False

Rob owns 300 shares of Blackwood common stock valued at $9 a share. Blackwood has declared a 3-for-1 stock split effective tomorrow. After the split, Rob will own

• 100 shares valued at about $27 a share

• 100 shares valued at about $3 a share.

• 900 shares valued at about $27 a share.

• 900 shares valued at about $3 a share.

A stock can have only one market value, but different investment values for different investors.

• True

• False

Westlake Industries has total assets of $42.5 million, total debt of $29.3 million, and $2.4 million of 6% preferred stock outstanding. If the company has 250,000 shares of common stock outstanding, its book value per share would be

• $32.33.

• $33.60.

• $43.20.

• $52.80.

You are given the following information on a company: BV $1.6b, MV: $12.804B, share outstanding 600,000. Which one of the following statements is correct based on the information provided?

 

• The market price is $21.34 per share.

• The investment value is $2.67 per share

• The par value is $2.67 per share.

• The book value is $21.34 per share.