FINANCE-Above, Accounting profits, Accepted, Below, Beta coefficient, Bird-in-the-hand theory

I.
Fill in the
blank using a number of terms listed below (@1 point).
Above, Accounting profits, Accepted, Below,
Beta coefficient,
Bird-in-the-hand theory, Capital-component, Capital
structure, Clientele effect, Depreciation, Dividend,
Dividend irrelevant theory, Dividend reinvestment plan, EPS, Ex-dividend
date, Expected inflation, Going
public, Inf. Content of dividend, Interest, Investmen,t Optimal distribution policy, Residual distribution model, Risk free rate, Scenario
analysis, Simulation analysis, Stock split, Target, Taxes, Tax effects, Tax preference theory, Treasury
stock

1. Using the CAPM, the required rate of return on common stock is found as a
function of the ________________,
the firm’s____________________,
and the required rate of return on an average stocks.
2. The two most important factors that affect the cost of capital and which
are beyond the firm’s direct control are the level of __________________ rates and ______________.
3. A firm can affect its cost of capital through its ______________ policy, its _______________
policy, and its _________________(capital
budgeting) policy.
4. If the expected rate of return on a given capital project lies _____________ the SML, the expected rate
of return on the project is more than enough to compensate for its risk, and
the project should be _________________.
5. Most firms employ several types of capital, called _________________, with common and preferred stock, along with debt,
being the three most frequently used types.
6. The correct weights to use in the WACC calculation are those based on the
firm’s ____________ capital
structure, since this is the best estimate of how the firm will, on average,
raise money in the future.
7. For many firms, ___________________
is the largest source of funds as shown in their statement of cash flows and is available to support the capital budget.
8. Salvage value is the market value of an
asset after its useful life. So it must be included in project cash flow
estimation with their ____________________.

9.
Since _________________ do not represent cash, they are of less
fundamental importance than cash flows for investment analysis. Recall that in the stock valuation chapters
we focused on dividends and free cash flows, which represent cash flows, rather
than on ______________.
10. Since the cost of capital includes a premium
for ___________________, failure to
adjust cash flows means that the denominator, but not the numerator, rises with
it, and this lowers the calculated NPV.
11.
___________________ involves working
with continuous probability distributions, and the output is a distribution of
net present values or rates of return. ________________ involves picking several
points on the various probability distributions and determining cash flows or
rates of return for these points.
12. The ______________________
is one that strikes a balance between dividend yield and capital gains so that
the firm’s stock price is maximized.
13. The ____________________________ holds that
dividend policy has no effect on either the price of a firm’s stock or its cost
of capital.
14. The _________________________
assumes that investors value a dollar of dividends more highly than a dollar of
expected capital gains. The ___________________
proposes that investors prefer capital gains over dividends, because capital
gains taxes can be deferred into the future, but taxes on dividends must be
paid as the dividends are received.
15. The _____________________
is a theory which holds that investors regard dividend changes as “signals” of
management forecasts. Thus, when dividends are raised, this is viewed by
investors as recognition by management of future earnings increases.
16. The _____________________
is the attraction of companies with specific dividend policies to those
investors whose needs are best served by those policies. Thus, companies with high dividends will have
a clientele of investors with low marginal tax rates and strong desires for
current income.
17. The ______________________ states that firms
should make distributions only when more earnings are available than needed to
support the optimal capital budget.
18. The ____________________ is the date when
the right to the dividend leaves the stock.
This date was established by stockbrokers to avoid confusion and is 2
business days prior to the holder of record date. If the stock sale is made prior to the
ex-dividend date, the dividend is paid to the buyer.
19. ____________________
allow stockholders to automatically purchase shares of common stock of the
paying corporation in lieu of receiving cash dividends. There are two types of plans–one involves
only stock that is already outstanding, while the other involves newly issued
stock.
20.
__________________ usually
occur when the stock price is outside of the optimal trading range. Stock
repurchases occur when a firm repurchases its own stock. These shares of stock are then referred to as
________________.
21.
__________________ increases the liquidity of the stock, establishes
a market value, facilitates raising new equity, and allows the original owners
to diversify. But it increases business costs, requires disclosure of operating
data, and reduces the control of the original owners.