Question

1) It is fair to think of common stock as permanent funding for a firm. T or F

2) When a publicly held firm sells additional shares, it does so in the secondary market. T or F

3) It is fair to expect a firm's number of authorized shares to be less than its number of outstanding shares. T or F

4) If a stock pays a $2 dividend forever and investors want a 20% return, the stock's price < $15. T or F

5) If the stock above (#4) stops paying dividends after 10 years, its price > $10. T or F

6) If a stock last paid a $4 dividend that will annually at 4% and it currently sells for $40, the shareholders return > 15%. T or F

Answer 1

1. The given statement is TRUE because common stock will always be permanent sourcing for the fund as equity is always considered the permanent source of fund.

2. No, when a publicly held firm issue additional share, it will be doing through the primary market as well because these additional share, if they are offered for the first time, they have to be offered through the primary market.

Given statement is FALSE

3. The given statement is FALSE because authorised shares will always be higher than outstanding share

4.p= {2/20%}= $10. The given statement is TRUE