Exam 14: Introduction to Corporate Financing and Governance

Which of the following statements is correct about a Canadian corporation in the 35 % tax bracket that can invest either in a bond paying 8 % interest or in the preferred stock of another corporation that pays a 6 % dividend?

Jay's Jams Inc.was just established with an investment of $5 million into stereo equipment.Jay expects his company to generate $800,000 a year for the next 10 years, followed by $1 million a year for the following 10 years.If Jay's cost of capital is 15%, find the market value and book value of his company.(Use values in millions)

Which of the following statements is correct concerning stock dividends?

What type of voting does a corporation have if there are two directors to elect and Director Jones received 50 votes from a shareholder who owns 100 shares?

Since preferred stock dividends are not deductible for tax purposes, few corporations own preferred stock.

Protective covenants are offered for the benefit of:

Which of the following statements is typically correct for a going-concern firm?

Callable bonds require the issuer to borrow money at a higher interest rate when rates rise.

A firm's internally generated funds are calculated by:

One way in which control of a corporation can be removed from the current board of directors is to:

Outline the impact of Bill C198

Which of the following are bonds whose coupon rate is tied to a price index?

All of the following are types of innovative bonds except:

When securities are sold directly to a small group of investors is termed:

When bonds are selling at par value, the bonds are known as fixed-rate bonds.

Bonds that have been sold only to a limited number of institutional investors are considered:

The price at which new shares are issued is referred to as the par value of the stock.

Compare the after-tax rates of return for a Canadian corporate investor from the following two investments: A 20-year, Canadian corporate bond that sells for par and offers a 9 % coupon versus an investment in preferred stock that sells for $40.00 per share and pays a $2.40 dividend.The corporation has a 35 % tax rate.

Which of the following bonds is likely to be viewed by investors as the most risky?

Other things being equal, discuss how the following provisions can affect the yield to maturity of bonds: Call provision Restriction on further borrowing Provision on specific collateral for the bond Option to convert the bonds into shares