Exam 1: Corporate Finance and the Financial Manager

A factory owner wants his workers to produce as many widgets as they can,so he pays his workers based on how many widgets they produce.However,in order to make sure that the workers do not rush and produce a large number of poorly made widgets,he checks the widgets at random at various stages of their manufacture.If a defect is found in a widget,the pay of the entire section of the factory responsible for that defect is docked.How is this factory owner seeking to solve the principal-agent problem in this case?

Raising new capital by issuing bonds is an example of a commercial banking activity.

How do the shareholders of most corporations exercise their control of that corporation?

Which of the following need be true for an asset to be considered liquid?

Saskatoon Smelting is a corporation that earned $4 per share before it paid any taxes.The firm retained $2 of after-tax earnings for reinvestment,and distributed what remained in dividend payments.If the corporate tax rate was 25% and dividend earnings were taxed at 15%,what was the value of the dividend earnings received after tax by a holder of 10,000 shares of Saskatoon Smelting?

On August 19,2004,Google IPO offered 19,605,052 shares at a price of U.S.$85 per share,which were sold in an online auction in a bid to make the shares more widely available.Which of the following statements best describes why these are considered a primary market transaction?

Red Deer Plumbing Supply Co.earns $4.50 per share before taxes.The corporate tax rate is 30%,the personal tax rate on dividends is 15%,and the personal tax rate on non-dividend income is 40%.What is the total amount of taxes paid per share if the company pays a $2.00 dividend?

Use the figure for the question(s) below. -Using the above information,how much would you pay for a share of BHP Billiton stock?

What is one of the major advantages corporations have over other business entities?

You own 50 units of a real estate investment trust (REIT)and 50 shares of a public corporation.The REIT earns $6.00 per unit.The corporation earns $4.00 per share before taxes.The corporate tax rate is 25%,your personal tax rate is 35%,and the tax rate on dividend income is 15%.What is the total after-tax income you receive,if everything is held outside a TFSA?

Why is the stock price of a company an indication of the performance of that company's senior managers?

You hold 1,000 units of Calgary Commercial Property,a real estate investment trust (REIT).The REIT announces a profit of $10 per share,of which it retains $4 for reinvestment and distributes the rest as dividend payments.Given your personal tax rate of 40%,and the tax rate on dividends is 15%,how much tax must you pay on your holdings?

Which of the following best describes why the Valuation Principle is a key concept in making financial decisions?

You own 50 units of a real estate investment trust (REIT)and 50 shares of a public corporation.The REIT earns $6.00 per unit.The corporation earns $4.00 per share before taxes.The corporate tax rate is 25%,your personal tax rate is 35%,and the tax rate on dividend income is 15%.What is the total after-tax income you receive,if your REIT holdings are outside of a TFSA,and your corporation shares are held inside a TFSA?

Stock markets provide liquidity for a firm's shares.

Which type of financial institution receives money in the form of deposits and loans it out to people and businesses?

What is the principal guiding factor for the financial manager?

Use the figure for the question(s) below. -Using the above information,how much would you receive if you sold a share of Washington Post stock?

Corporations have come to dominate the business world through their ability to raise large amounts of capital by sale of ownership shares to anonymous outside investors.

Why is it in general difficult to determine the market price of a private corporation's shares at any point in time?