Question 1

How would a convertible bondholder decide whether to exercise his rights of exchange?

Accepted Answer

The number of shares of common stock tha

Question 2

The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

Accepted Answer

A) True 
 B)False

Question 3

Long-term debt refers to those liabilities that:

Accepted Answer

A) have established a sinking fund for repayment. 
B) are not callable at the option of the firm. 
C) are secured by specific collateral. 
D) have a maturity of more than one year remaining. 
A) have established a sinking fund for repayment. 
B) are not callable at the option of the firm. 
C) are secured by specific collateral. 
D) have a maturity of more than one year remaining.

Question 4

With floating-rate preferred stock, dividends are linked to the firm's profits.

Accepted Answer

A) True 
 B)False

Question 5

Dividends are deductible for purposes of calculating a corporation's taxable income.

Accepted Answer

A) True 
 B)False

Question 6

What will likely happen in the case of a bond selling for $1,000 which can be converted to 20 shares of stock that are currently selling for $55 per share?

Accepted Answer

A) the bondholder will lose $100. 
B) the stock will go down to $50 per share. 
C) the bond's price will go down to $900. 
D) the bondholder will choose to convert. 
A) the bondholder will lose $100. 
B) the stock will go down to $50 per share. 
C) the bond's price will go down to $900. 
D) the bondholder will choose to convert.

Question 7

What is the after-tax cost to a corporation in the 35 % tax bracket of paying $50,000 in preferred-stock dividends?

Accepted Answer

A) $17,500 
B) $32,500 
C) $50,000 
D) $76,923 
A) $17,500 
B) $32,500 
C) $50,000 
D) $76,923

Question 8

Which of the following is the holder of a warrant allowed to do prior to a specified date?

Accepted Answer

A) convert debt into a specified number of shares. 
B) sell common shares at a predetermined price. 
C) exchange stock for bonds at a specified price. 
D) purchase shares at a predetermined price. 
A) convert debt into a specified number of shares. 
B) sell common shares at a predetermined price. 
C) exchange stock for bonds at a specified price. 
D) purchase shares at a predetermined price.

Question 9

Differences in classes of stock often appear in their right to vote.

Accepted Answer

A) True 
 B)False

Question 10

If a corporation has more shares issued than outstanding, then:

Accepted Answer

A) the board of directors is holding shares. 
B) there are preferred shares outstanding. 
C) the corporation has treasury stock. 
D) unexercised stock warrants exist. 
A) the board of directors is holding shares. 
B) there are preferred shares outstanding. 
C) the corporation has treasury stock. 
D) unexercised stock warrants exist.

Question 11

When firms retain cash, they are generating funds internally by increasing shareholder investment.

Accepted Answer

A) True 
 B)False

Question 12

Corporations that annually retire a set portion of their long-term debt are said to be using:

Accepted Answer

A) indexed bonds. 
B) sinking funds. 
C) convertible debt. 
D) secured debt. 
A) indexed bonds. 
B) sinking funds. 
C) convertible debt. 
D) secured debt.

Question 13

All of the following are true of retained earnings except:

Accepted Answer

A) it is the difference between paid in capital and the total dividends paid. 
B) it represents the amount of new capital shareholders indirectly contribute. 
C) it is equal to one minus the payout ratio. 
D) it is the amount of earnings plowed back into the firm. 
A) it is the difference between paid in capital and the total dividends paid. 
B) it represents the amount of new capital shareholders indirectly contribute. 
C) it is equal to one minus the payout ratio. 
D) it is the amount of earnings plowed back into the firm.

Question 14

Secured debt is debt that:

Accepted Answer

A) carries a fixed interest rate. 
B) is held by a trustee until repayment. 
C) has more than one year until maturity. 
D) has specific collateral backing it. 
A) carries a fixed interest rate. 
B) is held by a trustee until repayment. 
C) has more than one year until maturity. 
D) has specific collateral backing it.

Question 15

What conflicts of interest can arise between managers and stockholders?

Accepted Answer

Stockholders own the firm and hire manag

Question 16

What is the book value per share of equity for a firm with $1 million in net common equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares outstanding? (Use dollar value)

Accepted Answer

A) $38.00 
B) $40.00 
C) $47.50 
D) $50.00 
A) $38.00 
B) $40.00 
C) $47.50 
D) $50.00

Question 17

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital of $800 million, the total par value of the issued shares is:

Accepted Answer

A) $200 million. 
B) $600 million. 
C) $800 million. 
D) $1 billion. 
A) $200 million. 
B) $600 million. 
C) $800 million. 
D) $1 billion.

Question 18

A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that:

Accepted Answer

A) interest rates would be declining. 
B) interest rates would be increasing. 
C) their bond rating might be lowered. 
D) their bonds were going to be converted into equity. 
A) interest rates would be declining. 
B) interest rates would be increasing. 
C) their bond rating might be lowered. 
D) their bonds were going to be converted into equity.

Question 19

An issue of bonds that is sold simultaneously in several countries is called:

Accepted Answer

A) funded. 
B) Eurobond. 
C) subordinated. 
D) sinking fund. 
A) funded. 
B) Eurobond. 
C) subordinated. 
D) sinking fund.

Question 20

Retained earnings will decrease when stock is repurchased as treasury stock.

Accepted Answer

A) True 
 B)False

Exam 14: Introduction to Corporate Financing and Governance

How would a convertible bondholder decide whether to exercise his rights of exchange?

The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

Long-term debt refers to those liabilities that:

With floating-rate preferred stock, dividends are linked to the firm's profits.

Dividends are deductible for purposes of calculating a corporation's taxable income.

What will likely happen in the case of a bond selling for $1,000 which can be converted to 20 shares of stock that are currently selling for $55 per share?

What is the after-tax cost to a corporation in the 35 % tax bracket of paying $50,000 in preferred-stock dividends?

Which of the following is the holder of a warrant allowed to do prior to a specified date?

Differences in classes of stock often appear in their right to vote.

If a corporation has more shares issued than outstanding, then:

When firms retain cash, they are generating funds internally by increasing shareholder investment.

Corporations that annually retire a set portion of their long-term debt are said to be using:

All of the following are true of retained earnings except:

Secured debt is debt that:

What conflicts of interest can arise between managers and stockholders?

What is the book value per share of equity for a firm with $1 million in net common equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares outstanding? (Use dollar value)

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital of $800 million, the total par value of the issued shares is:

A corporation with long-term fixed-rate debt might prefer floating-rate debt if they thought that:

An issue of bonds that is sold simultaneously in several countries is called:

Retained earnings will decrease when stock is repurchased as treasury stock.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters