Which of the following statements about preferred stock is false?

Which of the following statements about preferred stock is false?

A) Preferred stock has a higher-priority claim on the firm's assets than common stock.
B) Failure to pay dividends will result in default.
C) Preferred stock has a lower-priority claim on the firm's assets than the firm's creditors in the event of default.
D) Preferred stock typically pays a fixed dividend.



Answer: B

Which of the following statements is true?

Which of the following statements is true?

A) In order for the constant growth dividend model to properly value a firm's common stock, R must be greater than g.
B) From a practical perspective, the growth rate in the constant growth dividend model must be greater than the sum of the long-term rate of inflation and the long-term real growth rate of the economy.
C) In order for the constant growth dividend model to properly value a firm's common stock, g must be greater than R.
D) The constant growth dividend model can be used effectively to value the common shares of a mixed growth stock.

Answer: A

The constant-growth dividend model will provide invalid solutions when

The constant-growth dividend model will provide invalid solutions when

a. the growth rate of the stock exceeds the required rate of return for the stock.
b. the growth rate of the stock is less than the required rate of return for the stock.
c. the growth rate of the stock is smaller than 10%.
d. None of the above.

Answer: A

Which one of the following statements is NOT true about constant-growth stocks?

Which one of the following statements is NOT true about constant-growth stocks?

a. Dividend stays constant over time.
b. Mature companies with a history of stable growth show this pattern.
c. Dividends grow at a constant rate each period forever.
d. Dividends that are to be paid out in the distant future have a very small present value and add little to the stock's price.

Answer: A