Question 1

Differences in classes of stock often appear in their right to vote.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is correct about a U.S.corporation in the 35 % tax bracket that can invest either in a bond paying 8 % interest or in the preferred stock of another corporation that pays a 6 % dividend?

Accepted Answer

A)  the stock is preferred by approximately .17 %. 
B)  the stock is preferred by approximately .80 %. 
C)  the bond is preferred by approximately 1.30 %. 
D)  the after-tax yields are identical on each. 
A)  the stock is preferred by approximately .17 %. 
B)  the stock is preferred by approximately .80 %. 
C)  the bond is preferred by approximately 1.30 %. 
D)  the after-tax yields are identical on each.

Question 4

With floating-rate preferred stock,dividends are linked to the firm's profits.

Accepted Answer

A) True 
 B)False

Question 5

If a corporation has more shares issued than outstanding,then:

Accepted Answer

A)  the board of directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D)  unexercised stock warrants exist. 
A)  the board of directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D)  unexercised stock warrants exist.

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

Protective covenants 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 9

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 10

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

Accepted Answer

A)  $0 
B)  $5,250 
C)  $12,250 
D)  $17,500 
A)  $0 
B)  $5,250 
C)  $12,250 
D)  $17,500

Question 11

Ray's Jams Inc.was just established with an investment of $5 million into stereo equipment.Ray expects his company to generate $800,000 a year for the next 200 years.If Ray's cost of capital is 15%,find the market value and book value of his company.(Use values in millions)

Accepted Answer

A)  Market value=$9.0 million; book value=$5.0 million 
B)  Market value=$5.0 million; book value=$5.3 million 
C)  Market value=$5.33 million; book value=$5.0 million 
D)  Market value=$7.0 million; book value=$5.0 million 
A)  Market value=$9.0 million; book value=$5.0 million 
B)  Market value=$5.0 million; book value=$5.3 million 
C)  Market value=$5.33 million; book value=$5.0 million 
D)  Market value=$7.0 million; book value=$5.0 million

Question 12

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?

Accepted Answer

In general,the fact that preferred stock

Question 13

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

Accepted Answer

Internally generated cash is the princip

Question 14

Which of the following equity concepts would you expect to be least important to a financial analyst?

Accepted Answer

A)  par value per share 
B)  additional paid-in capital 
C)  retained earnings 
D)  net common equity 
A)  par value per share 
B)  additional paid-in capital 
C)  retained earnings 
D)  net common equity

Question 15

List four protective covenants that you might be interested in as a prospective bondholder.Briefly describe why these would be realistic bondholder concerns.Note: the text did not list four covenants,so you must be creative.

Accepted Answer

Limit either dollar value of total debt

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

How would a convertible bondholder decide whether to exercise his rights of exchange?

Accepted Answer

The number of shares of common stock tha

Question 19

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital of $800 million,the total par value of the issued shares is:

Accepted Answer

A)  $200 million. 
B)  $600 million. 
C)  $800 million. 
D)  $1 billion. 
A)  $200 million. 
B)  $600 million. 
C)  $800 million. 
D)  $1 billion.

Question 20

When corporations default on their debt:

Accepted Answer

A)  bondholders may receive the firm's assets. 
B)  bondholders will suffer a loss. 
C)  the board of directors is liable for the payments. 
D)  the corporation is forced to default on its stock also. 
A)  bondholders may receive the firm's assets. 
B)  bondholders will suffer a loss. 
C)  the board of directors is liable for the payments. 
D)  the corporation is forced to default on its stock also.

Exam 14: Introduction to Corporate Financing and Governance

Differences in classes of stock often appear in their right to vote.

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

Which of the following statements is correct about a U.S.corporation in the 35 % tax bracket that can invest either in a bond paying 8 % interest or in the preferred stock of another corporation that pays a 6 % dividend?

With floating-rate preferred stock,dividends are linked to the firm's profits.

If a corporation has more shares issued than outstanding,then:

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

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

Protective covenants are offered for the benefit of:

Junk bonds represent debt that was issued to:

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

Ray's Jams Inc.was just established with an investment of $5 million into stereo equipment.Ray expects his company to generate $800,000 a year for the next 200 years.If Ray's cost of capital is 15%,find the market value and book value of his company.(Use values in millions)

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?

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

Which of the following equity concepts would you expect to be least important to a financial analyst?

List four protective covenants that you might be interested in as a prospective bondholder.Briefly describe why these would be realistic bondholder concerns.Note: the text did not list four covenants,so you must be creative.

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

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

How would a convertible bondholder decide whether to exercise his rights of exchange?

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital of $800 million,the total par value of the issued shares is:

When corporations default on their debt:

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