Strayer University FIN 534 Homework Chapter 7

FIN 534 Homework Chapter 7Directions: Answer the following five questions on a separate document. Explain how you reached theanswer or show your work if a mathematical calculation is needed, or both. Submit your assignment usingthe assignment link in the course shell. Each question is worth five points apiece for a total of 25 pointsfor this homework assignment.1. The preemptive right is important to shareholders because ita. will result in higher dividends per share.b. is included in every corporate charter.c. protects the current shareholders against a dilution of their ownership interests.d. protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate.e. allows managers to buy additional shares below the current market price.2. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?a. All common stocks, regardless of class, must have the same voting rights.b. All firms have several classes of common stock.c. All common stock, regardless of class, must pay the same dividend.d. Some class or classes of common stock are entitled to more votes per share than other classes.e. All common stocks fall into one of three classes: A, B, and C.3. Which of the following statements is CORRECT?a. Two firms with the same expected dividend and growth rates must also have the same stock price.b. It is appropriate to use the constant growth model to estimate a stock’s value even if its growth rate is never expected to become constant.c. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock’s dividend yield is also 5%.d. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.e. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.4. A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = 5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?a. The company’s dividend yield 5 years from now is expected to be 10%.b. The constant growth model cannot be used because the growth rate is negative.c. The company’s expected capital gains yield is 5%.d. The company’s expected stock price at the beginning of next year is $9.50.e. The company’s current stock price is $20.5. If a stock’s dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.a. The stock’s dividend yield is 5%.b. The price of the stock is expected to decline in the future.c. The stock’s required return must be equal to or less than 5%.d. The stock’s price one year from now is expected to be 5% above the current price.e. The expected return on the stock is 5% a year.