Which of the following statements is CORRECT? A) If a company has two classes of common stock,Class A and Class B,then the stocks may pay different dividends,but under all state charters the two classes must have the same voting rights. B) The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company. C) 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. D) The stock valuation model,P₀ = D₁/(r_s - g),cannot be used for firms that have negative growth rates. E) The stock valuation model,P₀ = D₁/(r_s - g),can be used only for firms whose growth rates exceed their required returns.

Question

Quizplus · Accepted Answer

Statement a is false--a number of companies have different classes of stock with different voting rights.Statement b is simply false.Statement c is true.Statements d and e are false,because the constant growth model can be used anytime as long as the constant growth rate is less than the required return (even if the growth rate is negative).

Which of the Following Statements Is CORRECT