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Multiple Choice Quiz
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1

A firm must make its dividend payments to preferred shareholders before it makes any interest payments to its bondholders.
A)True
B)False
2

Dividends on preferred stock are tax deductible to the issuing firm.
A)True
B)False
3

Most preferred stock has dividends that are cumulative.
A)True
B)False
4

If a firm experiences a financial loss for the year, the loss is shared equally by the debt holders and equity holders.
A)True
B)False
5

For income tax purposes, preferred stock is more like debt than it is like common stock.
A)True
B)False
6

The price-earnings ratios for NYSE stocks that are reported in the Wall Street Journal are based on earnings per share for the past year.
A)True
B)False
7

According to the constant growth model, the dividend yield is equal to the required return minus the dividend growth rate.
A)True
B)False
8

If one uses the constant growth model to value stock, one assumes that P1 = P0*(1 + g), P2 = P0*(1 + g), etc.
A)True
B)False
9

If one uses the perpetuity model to value stock, one assumes that P0 = P1 = P3, etc., implying that the annual return from owning the stock is zero.
A)True
B)False
10

It is never possible to value a stock that has supernormal dividend growth.
A)True
B)False





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