Which of the following statements is CORRECT?
A) the preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.
B) the preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.
C) the free cash flow valuation model, vops =fcf1/(wacc σ g), cannot be used for firms that have negative growth rates.
D) the free cash flow valuation model, vops = fcf1/(wacc σ g), can be used only for firms whose growth rates exceed their wacc.
E) if a company has two classes of common stock, class a and class b, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.

Question

Quizplus · Accepted Answer

Statement a is simply false. Statement b is true. Statements c and d are false, because the constant growth model can be used anytime as long as the constant growth rate is less than the required return (even if the growth rate is negative). Statement e is falseσa number of companies have different classes of stock with different voting rights.

Which of the Following Statements Is CORRECT