Question 1

Which of the following is true regarding convertible securities:

Accepted Answer

A) a convertible bondholder is forced to convert at a specific time. 
B) the convertible option on a bond gives the owner the right to buy shares from a company at a set price. 
C) the owner of a warrant option will benefit if the firm's stock does poorly. 
D) the owner of a warrant option will benefit if the firm's stock does well. 
A) a convertible bondholder is forced to convert at a specific time. 
B) the convertible option on a bond gives the owner the right to buy shares from a company at a set price. 
C) the owner of a warrant option will benefit if the firm's stock does poorly. 
D) the owner of a warrant option will benefit if the firm's stock does well.

Question 2

A proxy contest is typically one in which:

Accepted Answer

A) the board attempts to gain control from the shareholders. 
B) management attempts to gain control from the directors. 
C) outsiders attempt to gain control from management. 
D) the board attempts to gain control from the directors. 
A) the board attempts to gain control from the shareholders. 
B) management attempts to gain control from the directors. 
C) outsiders attempt to gain control from management. 
D) the board attempts to gain control from the directors.

Question 3

Junk bonds represent debt that was issued to:

Accepted Answer

A) finance the acquisition of used manufacturing equipment. 
B) firms in countries with high rates of inflation. 
C) offer higher yields and less security than other debt 
D) firms that have defaulted on their dividend payments 
A) finance the acquisition of used manufacturing equipment. 
B) firms in countries with high rates of inflation. 
C) offer higher yields and less security than other debt 
D) firms that have defaulted on their dividend payments

Question 4

In a situation of bankruptcy, only the funded debt will be repaid.

Accepted Answer

A) True 
 B)False

Question 5

For Canadian non-financial firms, what source of capital is used the least?

Accepted Answer

A) debt issues 
B) internal funds 
C) net equity issues 
D) bond issues 
A) debt issues 
B) internal funds 
C) net equity issues 
D) bond issues

Question 6

The CEO has ultimate control over the company's affairs.

Accepted Answer

A) True 
 B)False

Question 7

A company is about to issue new shares of stock.If the par value per share is $4.00, the price of the new shares will most likely be:

Accepted Answer

A) Less than $4.00. 
B) Equal to $4.00. 
C) Greater than $4.00. 
D) Equal to the capital surplus. 
A) Less than $4.00. 
B) Equal to $4.00. 
C) Greater than $4.00. 
D) Equal to the capital surplus.

Question 8

A warrant has an exercise price of $40, and the current stock price is $38.An investor holding this option will purchase the stock only if:

Accepted Answer

A) the dividend yield on the stock exceeds 10 %. 
B) the stock price falls below $38. 
C) the stock price rises above $40. 
D) the stock price falls to $20 or below. 
A) the dividend yield on the stock exceeds 10 %. 
B) the stock price falls below $38. 
C) the stock price rises above $40. 
D) the stock price falls to $20 or below.

Question 9

Discuss what effect you would expect the following debt provisions to have on the yield that corporations must offer investors: funded (versus unfunded) debt, sinking fund, call provision, subordinated debt, secured debt.

Accepted Answer

In times of a positively sloped yield cu

Question 10

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

Accepted Answer

A) interest and principal payments are tax deductible. 
B) interest payments are tax deductible. 
C) principal payments are tax deductible. 
D) 70 % of interest payments are tax deductible. 
A) interest and principal payments are tax deductible. 
B) interest payments are tax deductible. 
C) principal payments are tax deductible. 
D) 70 % of interest payments are tax deductible.

Question 11

If the Beta company issues $100 million worth of preferred stock, what will happen to its net worth if book value of common equity is $500 million?

Accepted Answer

A) it will increase by $400 million. 
B) it will decrease by $100 million. 
C) it will increase to $600 million. 
D) it will decrease to $400 million. 
A) it will increase by $400 million. 
B) it will decrease by $100 million. 
C) it will increase to $600 million. 
D) it will decrease to $400 million.

Question 12

With respect to bonds, when interest rates increase:

Accepted Answer

A) the coupon rate also increases. 
B) the coupon rate remains unchanged. 
C) the price of the bond rises. 
D) the price of the bond remains unchanged. 
A) the coupon rate also increases. 
B) the coupon rate remains unchanged. 
C) the price of the bond rises. 
D) the price of the bond remains unchanged.

Question 13

Canadian non-financial firms' average value of debt-to-equity ratios:

Accepted Answer

A) have fallen slightly over the past 10 years. 
B) have risen substantially over the past 10 years. 
C) have risen slightly over the past 10 years. 
D) have fallen substantially over the past 10 years. 
A) have fallen slightly over the past 10 years. 
B) have risen substantially over the past 10 years. 
C) have risen slightly over the past 10 years. 
D) have fallen substantially over the past 10 years.

Question 14

Income bonds are unusual.Interest payments on these types of bonds may be skipped or deferred if the firm's income is insufficient to make the payments.In what way are these bonds like preferred stock? Why might a firm choose to issue an income bond instead of a preferred stock?

Accepted Answer

Income bonds are like preferred stock in

Question 15

One common reason for issuing two distinct classes of common stock is to:

Accepted Answer

A) sell different classes to increase profits. 
B) allow one stock to increase in price while the other class declines. 
C) restrict voting privilegesfrom some shareholders. 
D) conserve cash by offering dividends to only one class of stockholders. 
A) sell different classes to increase profits. 
B) allow one stock to increase in price while the other class declines. 
C) restrict voting privilegesfrom some shareholders. 
D) conserve cash by offering dividends to only one class of stockholders.

Question 16

What will happen to retained earnings when a corporation issues 1,000 shares of $1 par stock for $10 per share?

Accepted Answer

A) it will increase by $1,000. 
B) it will increase by $9,000. 
C) it will decrease by $9,000. 
D) it will remain unchanged. 
A) it will increase by $1,000. 
B) it will increase by $9,000. 
C) it will decrease by $9,000. 
D) it will remain unchanged.

Exam 14: Introduction to Corporate Financing and Governance

Which of the following is true regarding convertible securities:

A proxy contest is typically one in which:

Junk bonds represent debt that was issued to:

In a situation of bankruptcy, only the funded debt will be repaid.

For Canadian non-financial firms, what source of capital is used the least?

The CEO has ultimate control over the company's affairs.

A company is about to issue new shares of stock.If the par value per share is $4.00, the price of the new shares will most likely be:

A warrant has an exercise price of $40, and the current stock price is $38.An investor holding this option will purchase the stock only if:

Discuss what effect you would expect the following debt provisions to have on the yield that corporations must offer investors: funded (versus unfunded) debt, sinking fund, call provision, subordinated debt, secured debt.

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

If the Beta company issues $100 million worth of preferred stock, what will happen to its net worth if book value of common equity is $500 million?

With respect to bonds, when interest rates increase:

Canadian non-financial firms' average value of debt-to-equity ratios:

Income bonds are unusual.Interest payments on these types of bonds may be skipped or deferred if the firm's income is insufficient to make the payments.In what way are these bonds like preferred stock? Why might a firm choose to issue an income bond instead of a preferred stock?

One common reason for issuing two distinct classes of common stock is to:

What will happen to retained earnings when a corporation issues 1,000 shares of $1 par stock for $10 per share?

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