Question 1

Retained earnings will decrease when stock is repurchased as treasury stock.

Accepted Answer

A) True 
 B)False  True

Question 2

Book value is a (an) ________ measure, while market value is a (an) ________ 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 D

Question 3

Since preferred stock dividends are not deductible for tax purposes, few corporations own preferred stock.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following would be considered a Eurodollar deposit?

Accepted Answer

A) Dollars deposited in a U.S.bank 
B) Yen deposited in a European bank 
C) Dollars deposited in a Japanese bank 
D) Marks deposited in a German bank 
A) Dollars deposited in a U.S.bank 
B) Yen deposited in a European bank 
C) Dollars deposited in a Japanese bank 
D) Marks deposited in a German bank

Question 5

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 6

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 stoc

Question 7

An investor who purchases a reverse floater is betting that interest rates will:

Accepted Answer

A) Increase 
B) Decrease 
C) Remain constant 
D) Move in the opposite direction of the coupon rate 
A) Increase 
B) Decrease 
C) Remain constant 
D) Move in the opposite direction of the coupon rate

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is correct about a corporation that borrows from its bank at "Prime plus one %?" The interest rate:

Accepted Answer

A) Is set at a level of the prime rate at initiation of the loan, plus one % 
B) Can fluctuate up to 1 % upwards over the life of the loan 
C) Can be changed upwards but not downwards over the life of the loan 
D) Can be changed upwards or downwards in accordance with prime rate changes over the life of the loan 
A) Is set at a level of the prime rate at initiation of the loan, plus one % 
B) Can fluctuate up to 1 % upwards over the life of the loan 
C) Can be changed upwards but not downwards over the life of the loan 
D) Can be changed upwards or downwards in accordance with prime rate changes over the life of the loan

Question 10

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 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.

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 Book Value = $5 million
Market Value = $800,000(200 year annuity factor)
= 800,000/15% 
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 Book Value = $5 million
Market Value = $800,000(200 year annuity factor)
= 800,000/15%

Question 12

The purpose of a sinking fund is to:

Accepted Answer

A) Reduce the par value of stock over time 
B) Take advantage of the tax break on preferred stock 
C) Periodically retire debt prior to final maturity 
D) Allow risky corporations to avoid bankruptcy 
A) Reduce the par value of stock over time 
B) Take advantage of the tax break on preferred stock 
C) Periodically retire debt prior to final maturity 
D) Allow risky corporations to avoid bankruptcy

Question 13

When bonds are selling at par value, the bonds are known as fixed-rate bonds.

Accepted Answer

A) True 
 B)False

Question 14

Discuss why more firms are turning to internally generated funds to finance new projects.

Accepted Answer

Many firms have a long-term goal of sust

Question 15

Compare the after-tax rates of return for a Canadian corporate investor from the following two investments: A 20-year, Canadian corporate bond that sells for par and offers a 9 % coupon versus an investment in preferred stock that sells for $40.00 per share and pays a $2.40 dividend.The corporation has a 35 % tax rate.

Accepted Answer

Bond:
9% (1 - .35) = after-tax return
9%

Question 16

Eurobonds are long-term, corporate liabilities that:

Accepted Answer

A) Are issued by European firms 
B) Are held outside the U.S 
C) Are marketed in all countries 
D) Are repaid in U.S.dollars 
A) Are issued by European firms 
B) Are held outside the U.S 
C) Are marketed in all countries 
D) Are repaid in U.S.dollars

Question 17

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

Question 18

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 19

For most firms, the majority of their funding is generated internally.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 14: Introduction to Corporate Financing and Governance

Retained earnings will decrease when stock is repurchased as treasury stock.

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

Since preferred stock dividends are not deductible for tax purposes, few corporations own preferred stock.

Which of the following would be considered a Eurodollar deposit?

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?

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?

An investor who purchases a reverse floater is betting that interest rates will:

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

Which of the following statements is correct about a corporation that borrows from its bank at "Prime plus one %?" The interest rate:

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:

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.

The purpose of a sinking fund is to:

When bonds are selling at par value, the bonds are known as fixed-rate bonds.

Discuss why more firms are turning to internally generated funds to finance new projects.

Eurobonds are long-term, corporate liabilities that:

A corporation's net worth is composed of the:

Additional paid-in capital refers to:

For most firms, the majority of their funding is generated internally.

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

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

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

Filters

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