Question

In: Finance

1. Which of the following statements is incorrect? a. Whenever the dividend growth rate exceeds the...

1. Which of the following statements is incorrect?

a. Whenever the dividend growth rate exceeds the required rate of return, the constant-growth model provides invalid solutions.

b. Legally, common stockholders enjoy limited liability; that is, their losses are limited to the original amount of their investment in the firm, and their personal assets cannot be taken to satisfy the obligations of the corporation.

c. Preferred stock dividends are declared by the board of directors, and failure to pay dividends does not result in default.

d. Legally, common stockholders have unlimited liability.

e. Most of the answers are correct except one.

2. Which of the following statements is correct?

a. The bond valuation model cannot be used to value perpetual preferred stock.

b. Common stockholders take precedence over preferred stockholders in the payment of dividends and in the distribution of corporate assets in the event of liquidation.

c. The constant-growth dividend model assumes that dividends will stay at the same amount forever.

d. All the answers are correct.

e. The payments of preferred stock dividends are contractual obligations.

3. Which of the following statements is incorrect?

a. NASDAQ is an OTC market because it does not have a physical location where trading takes place.

b. Common stock represents the interest payments and principal claim in a corporation.

c. If preferred stock dividends are not paid, the lack of payment is not legally viewed as a default.

d. Most of the answers are correct except one.

e. Owners of common stock are not guaranteed any dividend payments and have the lowest-priority claim on the firm's assets in the event of bankruptcy.

Expert Solution

The answers are given below:

jeff jeffy answered 2 years ago

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