Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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The
constant growth model used for evaluating the price of a share of common stock may also be used to
find the price of perpetual preferred stock or any other perpetuity.
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2.
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According to the textbook model, under conditions of nonconstant growth, the discount
rate utilized to find the present value of the expected cash flows will be the same for the initial
growth period as for the normal growth period.
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3.
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A
proxy is a document giving one party the authority to act for another party, typically the power to
vote shares of common stock. A proxy can be an important tool relating to control of the
firm.
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4.
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When
a corporation's shares are owned by a few individuals who are associated with the firm's management,
we say that the firm is "closely held."
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5.
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A
proxy fight involves a battle by a shareholder or group of shareholders who seek to change the
investment policy of the firm. If the proxy group is successful, current management retains control
of the firm but the proxy group dictates what investments the firm makes.
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6.
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If
the expected rate of return on a stock exceeds the required rate, a. | The stock is
experiencing supernormal growth. | b. | The stock should be sold. | c. | The company is
probably not trying to maximize price per share. | d. | The stock is a
good buy. | e. | Dividends are not being declared. | | |
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