Exam 14: Introduction to Corporate Financing and Governance

Preferred stock of financially strong firms sometimes sells at lower yields than the bonds of those firms.For weaker firms, the opposite holds true.What might explain this pattern?

Disregarding issues of risk and return, why might it be important to shareholders and management alike as to what class of equity is issued (e.g., common, preferred, etc.)?

Discuss why more firms are turning to internally generated funds to finance new projects.

Subordinated debt is an example of short-term debt for a firm.

Which of the following statements is correct for a firm with 100,000 outstanding shares and earnings per share of $6 if retained earnings were just adjusted downward by $50,000?

For most firms, the majority of their funding is generated internally.

Earnings this year for Plasti-tech Inc.were $200,000, of which $60,000 it decided to plow back and 10 % was depreciation.Plasti-tech's internally generated funds are:

Debt financing is riskier than equity financing, but it does provide benefits to the firm.

Which of the following would be considered a Eurodollar deposit?

Discuss generally the idea of bond ratings, including the difference between investment grade and junk bonds.

When corporations default on their debt:

When a firm issues 50,000 shares with a par value of $5 for $22 per share, additional paid in capital will:

If shareholders do not like the policies that management pursues, their easiest solution is to vote in a different board of directors.

One way that investors contribute capital to the firm is by:

Any capital surplus shown by a firm on its balance sheet results from:

Bonds with the callable feature sell at lower prices than bonds without such a feature.

The purpose of a sinking fund is to:

What tax liability is created by a Canadian corporation in the 35% tax bracket that receives $50,000 in preferred stock dividends?

A corporation has authorized share capital of 1 million shares, of which 800,000 shares are issued and 200,000 are treasury shares.Construct the equity portion of the balance sheet if the net common equity is $40 million, all shares were issued with a par value of $1 and an issue price of $25, and retained earnings are $30 million.

What does it mean to say that financing is a zero-NPV transaction?