Question 1

A firm's internally generated funds are calculated by:

Accepted Answer

A) Subtracting depreciation from net income 
B) Adding depreciation to net income 
C) Adding dividends to net income 
D) Subtracting dividends from net income plus depreciation 
A) Subtracting depreciation from net income 
B) Adding depreciation to net income 
C) Adding dividends to net income 
D) Subtracting dividends from net income plus depreciation

Question 2

The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

Accepted Answer

A) True 
 B)False

Question 3

What conflicts of interest can arise between managers and stockholders?

Accepted Answer

Stockholders own the firm and hire manag

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

A corporation has authorized share capital of 1 million shares, of which 800,000 shares are issued and 200,000 are treasury shares.Construct the equity portion of the balance sheet if the net common equity is $40 million, all shares were issued with a par value of $1 and an issue price of $25, and retained earnings are $30 million.

Accepted Answer

The answer of A corporation has authorized share capital of...

Question 7

Jay's Jams Inc.was just established with an investment of $5 million into stereo equipment.Jay expects his company to generate $800,000 a year for the next 10 years, followed by $1 million a year for the following 10 years.If Jay'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=$5.3 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(10 year annuity factor)
+ PV of $1mill (10 year annuity factor)
= 800,000(5.02) + PV of 1 mill (5.02)
= 4,016,000 + 5,020,000/4.05 
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=$5.3 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(10 year annuity factor)
+ PV of $1mill (10 year annuity factor)
= 800,000(5.02) + PV of 1 mill (5.02)
= 4,016,000 + 5,020,000/4.05

Question 8

What happens 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) All the bondholders will choose to convert 
B) The stock will go down to $50 per share 
C) The bond's price will go down to $900 
D) Some of the bondholders will choose to convert 
A) All the bondholders will choose to convert 
B) The stock will go down to $50 per share 
C) The bond's price will go down to $900 
D) Some of the bondholders will choose to convert

Question 9

Dividends are deductible for purposes of calculating a corporation's taxable income.

Accepted Answer

A) True 
 B)False

Question 10

The system of electing a board of directors where each director is voted on separately is known as:

Accepted Answer

A) Majority voting 
B) Supermajority voting 
C) Cumulative voting 
D) Proxy voting 
A) Majority voting 
B) Supermajority voting 
C) Cumulative voting 
D) Proxy voting

Question 11

Corporations are less likely to repurchase callable bonds when market interest rates have risen.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Disregarding issues of risk and return, why might it be important to shareholders and management alike as to what class of equity is issued (e.g., common, preferred, etc.)?

Accepted Answer

The primary differences between classes

Question 14

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 15

What is the book value per share of equity for a firm with $1 million in net common equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares outstanding?

Accepted Answer

A) $38.00 
B) $40.00 
C) $47.50 
D) $50.00 
A) $38.00 
B) $40.00 
C) $47.50 
D) $50.00

Question 16

One way that investors contribute capital to the firm is by:

Accepted Answer

A) Plowing back money into retained earnings 
B) Paying less than par value for the stock 
C) Receiving dividends and reinvesting them on their own 
D) Increasing the amount of treasury stock 
A) Plowing back money into retained earnings 
B) Paying less than par value for the stock 
C) Receiving dividends and reinvesting them on their own 
D) Increasing the amount of treasury stock

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

Internally generated cash is the princip

Question 19

Which of the following balance-sheet accounts will be affected when the company buys back some of its outstanding shares?

Accepted Answer

A) Retained earnings 
B) Additional paid-in capital 
C) Treasury shares at cost 
D) All of the above 
A) Retained earnings 
B) Additional paid-in capital 
C) Treasury shares at cost 
D) All of the above

Question 20

The value of retained earnings on the corporate balance sheet represents the amount of earnings:

Accepted Answer

A) Not paid out in dividends this period 
B) That remains in cash 
C) Over and above corporate income taxes 
D) Reinvested in the firm since its inception 
A) Not paid out in dividends this period 
B) That remains in cash 
C) Over and above corporate income taxes 
D) Reinvested in the firm since its inception

Exam 14: Introduction to Corporate Financing and Governance

A firm's internally generated funds are calculated by:

The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

What conflicts of interest can arise between managers and stockholders?

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

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

What happens 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?

Dividends are deductible for purposes of calculating a corporation's taxable income.

The system of electing a board of directors where each director is voted on separately is known as:

Corporations are less likely to repurchase callable bonds when market interest rates have risen.

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:

Disregarding issues of risk and return, why might it be important to shareholders and management alike as to what class of equity is issued (e.g., common, preferred, etc.)?

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 book value per share of equity for a firm with $1 million in net common equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares outstanding?

One way that investors contribute capital to the firm is by:

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

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

Which of the following balance-sheet accounts will be affected when the company buys back some of its outstanding shares?

The value of retained earnings on the corporate balance sheet represents the amount of earnings:

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

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