Question 1

What is the relationship between a stock's market value and its investment value?

Accepted Answer

The answer of What is the relationship between a stock's...

Question 2

The value that investors place on a stock is called its

Accepted Answer

The value that investors place on a stock is called its investment value, as it reflects how much an investor is willing to pay for a share of the company based on their perceived potential for future earnings and growth. Book value refers to the company's assets minus its liabilities, and is used to determine its net worth. Liquidation value is the amount that would be received if all assets were sold and liabilities were paid off. Par value is the nominal or face value assigned to a stock or bond by the issuing company, which has no relation to its market value.

Question 3

Shareholders who sell their stock on or after the ex-dividend date, but before the date of record, will still receive the declared dividend.

Accepted Answer

This is because the ex-dividend date marks the day when the stock begins trading without its upcoming dividend. As long as shareholders sell after the ex-dividend date, they are still entitled to receive the dividend because they held the stock on or before the date of record.

Question 4

As a general rule, which one of the following statements concerning the various values of common stock is correct?

Accepted Answer

Book values are typically conservative estimates of a company's worth, calculated based on the company's balance sheet. Market values often exceed book values because they reflect the trading price of the stock in the market, which can be influenced by future growth prospects, market conditions, and investor perceptions.

Question 5

High dividend yields are typical of rapidly growing companies.

Accepted Answer

High dividend yields are typically associated with stable and mature companies, as they tend to have a large amount of excess cash flow that they can use to pay out to shareholders. Rapidly growing companies typically reinvest their profits back into the business for future growth opportunities, and therefore have lower dividend yields.

Question 6

Which of the following will tend to increase transaction costs?

Accepted Answer

Buying or selling fewer than 100 shares at a time tends to increase transaction costs as brokers may charge higher fees for small trades.

Question 7

If a firm has a 2 million shares outstanding and its stock trades at $25 per share, the company has a market capitalization of $50,000,000.

Accepted Answer

Market capitalization is calculated by multiplying the total number of outstanding shares by the current market price per share. Therefore, 2 million shares times $25 per share equals a market capitalization of $50,000,000.

Question 8

Another term for the stated value or face value of a stock is its

Accepted Answer

The par value of a stock is the face value or stated value of a share of stock. It is often set at a low amount and does not necessarily reflect the market value of the stock. Book value refers to the value of a company's assets minus its liabilities, while liquidation value is the estimated value of a company's assets if it were to be sold off. Proxy value is not a commonly used term in finance.

Question 9

A stock's investment value can be much higher than its book value.

Accepted Answer

The investment value of a stock is based on many factors such as market demand, growth potential, earnings, and future projections, which may result in a higher value than its book value, which is the value of the company's assets minus its liabilities.

Question 10

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

Accepted Answer

The answer of Westlake Industries has total assets of $42.5...

Question 11

The investment value for a publicly traded stock can readily be found in the financial section of the newspaper or on the Internet.

Accepted Answer

The answer of The investment value for a publicly traded...

Question 12

Stock dividends and stock splits both increase the number of shares but add nothing to the value of the company.

Accepted Answer

Stock dividends and stock splits do not affect the overall value of the company, even though they increase the number of shares. However, they may affect the price per share and can potentially make the shares more attractive to investors.

Question 13

Stock dividends do not increase the value of a shareholder's position.

Accepted Answer

Stock dividends distribute additional shares to shareholders, maintaining their proportional ownership in the company without increasing the overall value of their investment, as the price per share typically adjusts downward to reflect the increased share count.

Question 14

You are given the following information on a company.  Which one of the following statements is correct based on the information provided?

Accepted Answer

The answer of You are given the following information on...

Question 15

A company's board of directors must declare a dividend if the firm is profitable.

Accepted Answer

The board of directors of a company has the discretion to declare or not declare a dividend even if the firm is profitable. They may choose to reinvest the profits back into the company, pay off debts or keep the money as reserves.

Question 16

With respect to dividend payments on stocks, the date of record is the date on which the payment is actually paid.

Accepted Answer

The date of record is actually the date on which the company finalizes its list of shareholders who are eligible to receive the dividend payment. The payment date is the actual date on which the payment is made to these eligible shareholders.

Question 17

The par or stated value of common stock is important for

Accepted Answer

The answer of The par or stated value of common...

Question 18

If a firm has a 2 million shares outstanding and its stock trades at $25 per share, the company also has $10,000,000 in debt. The company's market capitalization is

Accepted Answer

Market capitalization is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share. For this firm, it's 2 million shares * $25/share = $50,000,000. The company's debt is not considered in the calculation of market capitalization.

Question 19

The value that represents the amount of stockholders' equity in a firm is called the

Accepted Answer

Book value represents the amount of stockholders' equity in a firm, calculated by subtracting the liabilities from the assets. Par value is the nominal or face value of a security, while liquidation value is the amount that shareholders would receive if a company were to liquidate. Market value represents the current price of a security in the market.

Question 20

The Jennings Company has 4 million shares of stock outstanding. The stock has a par value of $0.10 per share and is currently trading at $18 per share. According to this information, the market capitalization of Jennings is

Accepted Answer

Market capitalization = Number of shares outstanding x current stock price
Market capitalization = 4,000,000 x $18
Market capitalization = $72,000,000

Quiz 6: Common Stocks