When calculating the value of common stock, you grow the dividend when

• you are given the next expected dividend
• you are given the just paid dividend
• when the preferred stock pays a dividend
• when the growth rate is higher than the investor's required return

You can value any investment by

• Calculating the present value of all past cash flow
• Calculating the present value of all future expected cash flows
• Multiplying the net income by the discount rate
• Dividing the net income by sales

4 points

Which of the following is the least expensive capital for the firm?

• Bond capital
• Preferred Stock capital
• Common Stock capital

4 points

QUESTION 4

What will happen to your yield when you pay more for an investment, holding all else constant?

• The yield will go down
• The yield will go up
• The yield could go up or down
• The yield should not be affected

4 points

QUESTION 5

Which of the following is a true statement?

• The cost of bond capital for the firm is not tax deductible
• The cost of common stock capital for the firm is tax deductible
• The cost of preferred stock capital for the firm is tax deductible
• The cost of bond capital for the firm is tax deductible

4 points

QUESTION 6

If an investment has higher return and higher risk than another investment, which one should you select?

• always select the one with the higher return
• always select the one with the lower risk
• select the one with higher risk only if you are a risk taker
• select the one with higher risk only if you are risk adverse

4 points

If a firm's growth rate increases, holding all else constant, what will it do to the value of common stock?

• Increase it
• Decrease it
• Increase or decrease it
• Should not affect the value

4 points

QUESTION 8

The weighted average cost of capital (WACC) is

• a weighted average of the after-tax cost of debt, common stock and preferred stock
• a weighted average of the before-tax cost of debt, common stock and preferred stock
• a weightedaverage of the return from debt, common stock and preferred stock
• a weightedaverage of the return from debt only

4 points

The preferred stock dividend

• Increases as the growth rate of the firm increases
• Is fixed
• Could increase or decrease depending on the growth of the firm
• Could increase or decrease depending on market interest rates