1.When residual cash flows are high, stock values will be:

a.low.

b.unpredictable.

c.high.

d.unchanged.

2.Why is it expected to be using higher discount rates to discount stock dividend payments compared to the discount rates used to discount bond coupon payments?

a.Because companies usually use more equity than debt.

b.Because the cash flows resulting from owning a stock are typically more risky than the cash flows resulting from owning a bond.

c.Because stocks typically pay higher payments than bonds.

d.Because dividends are paid more frequently than coupon payments.

3.If the management team of a company decides to increase the dividend payment for the current year

a.The discount rate will change because it will change the risk of the cash flows.

b.The stock price should decline because the present value will be lower

c.The stock price should not be impacted because nothing fundamental about the company has been changed, and as there will be less funds generated to pay out future dividends.

d.The stock price should rise because the present value will be higher

4.As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims.

a.bondholders

b.creditors

c.preferred stockholders

d.common stockholders