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Finance Answers

In: Business and Management

Submitted By mechedu
Words 4394
Pages 18
1. Incorrect If the expected rate of return on a stock exceeds the required rate,
Your answer: The stock is experiencing nonconstant growth.
The correct answer: The stock is a good buy.
Incorrect. An investor would be willing to pay the current market price for a security if the expected rate of return implied by a given market price equals the required rate of return. Therefore, if the expected rate exceeds the required rate, the stock is a good buy.
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2. Correct The preemptive right is important to shareholders because it
Your answer: Entitles the common shareholders to maintain a proportionate share of ownership in the firm.
Correct. A preemptive right entitles shareholders to maintain a proportionate share of ownership in the firm and does not dilute their ownership base.
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3. Incorrect The required rate of return on the common stock of New Net Corporation is 14 percent. The stock's dividend is $1.50 and is expected to grow at a constant rate of 9 percent during the year. The projected price of the stock at the end of the year is $45. What is the value of the stock today?
Your answer: $45.00.
The correct answer: $40.90.
Incorrect. Vcs = [$1.50(1.09)]/1.14 + 45/1.14 = 1.43 + 39.47 = $40.90.
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4. Incorrect A share of preferred stock pays an annual dividend of $6 per share. If investors require a 12 percent rate of return, what is the value of this preferred stock?
Your answer: $46.75
The correct answer: $50.00
Incorrect. Vps = D/kps = $6/0.12 = $50.
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5. Incorrect The Smith Company is undertaking a large project and needs…...

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