Question 1

Callable bonds require the issuer to borrow money at a higher interest rate when rates rise.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is typically correct for a going-concern firm?

Accepted Answer

A)  book value of equity exceeds market value of equity 
B)  market value of equity exceeds book value of equity 
C)  book value of equity equals market value of equity 
D)  no typical relationship exists between book and market values of equity 
A)  book value of equity exceeds market value of equity 
B)  market value of equity exceeds book value of equity 
C)  book value of equity equals market value of equity 
D)  no typical relationship exists between book and market values of equity

Question 3

In what ways is preferred stock like long-term debt? In what ways is it like common stock?

Accepted Answer

Preferred stock is like long-term debt i

Question 4

Which of the following forms of debt would be likely to offer debt holders the lowest interest rate?

Accepted Answer

A)  secured debt that is not callable. 
B)  secured debt with a sinking fund. 
C)  subordinated debt that is callable. 
D)  subordinated debt with a sinking fund. 
A)  secured debt that is not callable. 
B)  secured debt with a sinking fund. 
C)  subordinated debt that is callable. 
D)  subordinated debt with a sinking fund.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Outline the impact of Bill C198

Accepted Answer

Bill C-198 tried to prevent damaging con

Question 7

When new shares are sold at a price greater than par value,the excess over par is recorded as:

Accepted Answer

A)  capital surplus. 
B)  retained earnings. 
C)  treasury stock. 
D)  authorized capital. 
A)  capital surplus. 
B)  retained earnings. 
C)  treasury stock. 
D)  authorized capital.

Question 8

Which of the following bonds is likely to be viewed by investors as the most risky?

Accepted Answer

A)  subordinated debt 
B)  indexed bond 
C)  secured bond 
D)  asset-backed bonds 
A)  subordinated debt 
B)  indexed bond 
C)  secured bond 
D)  asset-backed bonds

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

When securities are sold directly to a small group of investors is termed:

Accepted Answer

A)  general issue. 
B)  floating issue. 
C)  public issue. 
D)  private placement. 
A)  general issue. 
B)  floating issue. 
C)  public issue. 
D)  private placement.

Question 11

What conflicts of interest can arise between managers and stockholders?

Accepted Answer

Stockholders own the firm and hire manag

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

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

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

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

Accepted Answer

Corporate bonds are rated for safety of

Question 17

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 18

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 19

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 20

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

Exam 14: Introduction to Corporate Financing and Governance

Callable bonds require the issuer to borrow money at a higher interest rate when rates rise.

Which of the following statements is typically correct for a going-concern firm?

In what ways is preferred stock like long-term debt? In what ways is it like common stock?

Which of the following forms of debt would be likely to offer debt holders the lowest interest rate?

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

Outline the impact of Bill C198

When new shares are sold at a price greater than par value,the excess over par is recorded as:

Which of the following bonds is likely to be viewed by investors as the most risky?

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

When securities are sold directly to a small group of investors is termed:

What conflicts of interest can arise between managers and stockholders?

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

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

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

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

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

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)

Which of the following is true regarding convertible securities:

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?

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

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 and Payout 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