Question 1

Book value is a(n) ________ measure, while market value is a(n) ________ measure.

Accepted Answer

A) inward-looking; outward-looking 
B) more accurate; less accurate 
C) forward-looking; backward-looking 
D) backward-looking; forward-looking 
A) inward-looking; outward-looking 
B) more accurate; less accurate 
C) forward-looking; backward-looking 
D) backward-looking; forward-looking

Question 2

Show the capital accounts at the end of the first year of operation for a firm that, at the beginning of the year, issued 50,000 shares of $1.50 par value common stock for $15 per share, repurchased 5,000 shares during the year at $20 per share, and paid out 40 % of earnings as dividends with a 50 cent per share dividend.

Accepted Answer

The answer of Show the capital accounts at the end...

Question 3

Market value is usually greater than book value because:

Accepted Answer

A) inflation drives market value above original costs. 
B) inflation drives book value below original costs. 
C) firms tend to invest in projects with very high book values. 
D) the cost of capital drives market value up. 
A) inflation drives market value above original costs. 
B) inflation drives book value below original costs. 
C) firms tend to invest in projects with very high book values. 
D) the cost of capital drives market value up.

Question 4

A stock's par value is represented by:

Accepted Answer

A) the maturity value of the stock. 
B) the price at which each share is recorded. 
C) the price at which an investor could sell the stock. 
D) the price received by the firm when the stock was issued. 
A) the maturity value of the stock. 
B) the price at which each share is recorded. 
C) the price at which an investor could sell the stock. 
D) the price received by the firm when the stock was issued.

Question 5

The value of retained earnings on the corporate balance sheet represents the amount of earnings:

Accepted Answer

A) not paid out in dividends this period. 
B) that remains in cash. 
C) over and above corporate income taxes. 
D) reinvested in the firm since its inception. 
A) not paid out in dividends this period. 
B) that remains in cash. 
C) over and above corporate income taxes. 
D) reinvested in the firm since its inception.

Question 6

Protective covenants prevent bond issuers from irresponsible over-borrowing behavior and are offered for the benefit of:

Accepted Answer

A) common shareholders. 
B) preferred shareholders. 
C) bondholders. 
D) both common and preferred shareholders. 
A) common shareholders. 
B) preferred shareholders. 
C) bondholders. 
D) both common and preferred shareholders.

Question 7

The system of electing a board of directors where each director is voted on separately is known as:

Accepted Answer

A) majority voting. 
B) supermajority voting. 
C) cumulative voting. 
D) proxy voting. 
A) majority voting. 
B) supermajority voting. 
C) cumulative voting. 
D) proxy voting.

Question 8

A company's board of directors is primarily an agent of the company's:

Accepted Answer

A) management. 
B) employees. 
C) shareholders. 
D) management and employees. 
A) management. 
B) employees. 
C) shareholders. 
D) management and employees.

Question 9

ABC Corporation has fallen upon hard times and dividends on their non-cumulative, preferred stock have not been paid for three years.Which of the following is true?

Accepted Answer

A) common shareholders must now receive three years' worth of dividends. 
B) preferred shareholders must now receive three years' worth of dividends. 
C) the corporation must fold if preferred shareholders are not paid. 
D) common shareholders have not received dividends for three years. 
A) common shareholders must now receive three years' worth of dividends. 
B) preferred shareholders must now receive three years' worth of dividends. 
C) the corporation must fold if preferred shareholders are not paid. 
D) common shareholders have not received dividends for three years.

Question 10

Callable bonds may be repurchased by the issuing firm before maturity at the specified call price.

Accepted Answer

A) True 
 B)False

Question 11

What are recent trends in a firm's use of different sources of finance?

Accepted Answer

Internally generated cash is the princip

Question 12

Additional paid-in capital refers to:

Accepted Answer

A) a firm's retained earnings. 
B) a firm's treasury stock. 
C) the difference between the issue price and the par value. 
D) funds borrowed from a bank or bondholders. 
A) a firm's retained earnings. 
B) a firm's treasury stock. 
C) the difference between the issue price and the par value. 
D) funds borrowed from a bank or bondholders.

Question 13

How much will be recorded as a firm's additional paid-in capital if it issues 1 million shares that have a $5 par value for $15 per share? (Use dollar values)

Accepted Answer

A) $0 
B) $5,000,000 
C) $10,000,000 
D) $15,000,000 
A) $0 
B) $5,000,000 
C) $10,000,000 
D) $15,000,000

Question 14

Limiting the size of dividends paid is an example of a protective covenant.

Accepted Answer

A) True 
 B)False

Question 15

Illustrate the difference between majority and cumulative voting systems using as an example a shareholder who owns 1,000 shares and an election in which three directors will be selected.Why might shareholders care about which voting system is adopted?

Accepted Answer

In the majority voting system, this shar

Question 16

Explain how the founder of a business can eventually lose control of the firm.How can the founder ensure this will not happen?

Accepted Answer

When the founder wants the business to g

Question 17

When a stock price rises to its par value, it will then be repurchased by the corporation.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following balance-sheet accounts will not be affected when there is a reduction in the number of outstanding shares?

Accepted Answer

A) retained earnings 
B) additional paid-in capital 
C) common shares (at par value) 
D) treasury stock at cost 
A) retained earnings 
B) additional paid-in capital 
C) common shares (at par value) 
D) treasury stock at cost

Question 19

Giving an investor the right to buy shares in the issuing company at a predetermined rate is termed:

Accepted Answer

A) option. 
B) warrant. 
C) private placement. 
D) Consideration. 
A) option. 
B) warrant. 
C) private placement. 
D) Consideration.

Question 20

A corporation's net worth is composed of the:

Accepted Answer

A) book value of common equity. 
B) par value plus additional paid-in capital. 
C) retained earnings less treasury stock. 
D) book value of common equity plus preferred stock. 
A) book value of common equity. 
B) par value plus additional paid-in capital. 
C) retained earnings less treasury stock. 
D) book value of common equity plus preferred stock.

Exam 14: Introduction to Corporate Financing and Governance

Book value is a(n) ________ measure, while market value is a(n) ________ measure.

Market value is usually greater than book value because:

A stock's par value is represented by:

The value of retained earnings on the corporate balance sheet represents the amount of earnings:

Protective covenants prevent bond issuers from irresponsible over-borrowing behavior and are offered for the benefit of:

The system of electing a board of directors where each director is voted on separately is known as:

A company's board of directors is primarily an agent of the company's:

ABC Corporation has fallen upon hard times and dividends on their non-cumulative, preferred stock have not been paid for three years.Which of the following is true?

Callable bonds may be repurchased by the issuing firm before maturity at the specified call price.

What are recent trends in a firm's use of different sources of finance?

Additional paid-in capital refers to:

How much will be recorded as a firm's additional paid-in capital if it issues 1 million shares that have a $5 par value for $15 per share? (Use dollar values)

Limiting the size of dividends paid is an example of a protective covenant.

Illustrate the difference between majority and cumulative voting systems using as an example a shareholder who owns 1,000 shares and an election in which three directors will be selected.Why might shareholders care about which voting system is adopted?

Explain how the founder of a business can eventually lose control of the firm.How can the founder ensure this will not happen?

When a stock price rises to its par value, it will then be repurchased by the corporation.

Which of the following balance-sheet accounts will not be affected when there is a reduction in the number of outstanding shares?

Giving an investor the right to buy shares in the issuing company at a predetermined rate is termed:

A corporation's net worth is composed of the:

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

Book value is a(n) measure, while market value is a(n) measure.