Question 1

The price at which new shares are issued is referred to as the par value of the stock.

Accepted Answer

A) True 
 B)False

Question 2

Bonds with the callable feature sell at lower prices than bonds without such a feature.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Question 5

Earnings this year for Plasti-tech Inc.were $200,000, of which $60,000 it decided to plow back and 10 % was depreciation.Plasti-tech's internally generated funds are:

Accepted Answer

A) $40,000 
B) $60,000 
C) $80,000 
D) $140,000 Internally generated funds:
= (0.10)(200,000) + 60,000 
A) $40,000 
B) $60,000 
C) $80,000 
D) $140,000 Internally generated funds:
= (0.10)(200,000) + 60,000

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

One common reason for issuing two distinct classes of common stock is to:

Accepted Answer

A) Sell different classes to increase profits 
B) Allow one stock to increase in price while the other class declines 
C) Restrict voting privileges from some shareholders 
D) Conserve cash by offering dividends to only one class of stockholders 
A) Sell different classes to increase profits 
B) Allow one stock to increase in price while the other class declines 
C) Restrict voting privileges from some shareholders 
D) Conserve cash by offering dividends to only one class of stockholders

Question 8

Preferred stockholders:

Accepted Answer

A) Have full voting rights 
B) Receive a fixed dividend 
C) Have priority over debt holders if the company goes out of business 
D) All of the above 
A) Have full voting rights 
B) Receive a fixed dividend 
C) Have priority over debt holders if the company goes out of business 
D) All of the above

Question 9

When a firm issues 50,000 shares with a par value of $5 for $22 per share, additional paid in capital will:

Accepted Answer

A) Decrease by $250,000 
B) Increase by $250,000 
C) Increase by $850,000 
D) Increase by $1,100,000 
A) Decrease by $250,000 
B) Increase by $250,000 
C) Increase by $850,000 
D) Increase by $1,100,000

Question 10

What type of voting does a corporation have if there are two directors to elect and Director Jones received 50 votes from a shareholder who owns 100 shares?

Accepted Answer

A) Majority voting 
B) Cumulative voting 
C) Supermajority voting 
D) Cannot tell voting type from given information. 
A) Majority voting 
B) Cumulative voting 
C) Supermajority voting 
D) Cannot tell voting type from given information.

Question 11

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 12

Market value is usually greater than book value because:

Accepted Answer

A) Inflation drives market value above original costs 
B) Inflation drives book value below original costs 
C) Firms tend to invest in projects with very high book values 
D) The cost of capital drives market value up 
A) Inflation drives market value above original costs 
B) Inflation drives book value below original costs 
C) Firms tend to invest in projects with very high book values 
D) The cost of capital drives market value up

Question 13

Secured debt is debt that:

Accepted Answer

A) Carries a fixed interest rate 
B) Is held by a trustee until repayment 
C) Has more than one year until maturity 
D) Has specific collateral backing it 
A) Carries a fixed interest rate 
B) Is held by a trustee until repayment 
C) Has more than one year until maturity 
D) Has specific collateral backing it

Question 14

Income bonds are unusual.Interest payments on these types of bonds may be skipped or deferred if the firm's income is insufficient to make the payments.In what way are these bonds like preferred stock? Why might a firm choose to issue an income bond instead of a preferred stock?

Accepted Answer

Income bonds are like preferred stock in

Question 15

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?

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 16

Which of the following statements is correct for a firm with 100,000 outstanding shares and earnings per share of $6 if retained earnings were just adjusted downward by $50,000?

Accepted Answer

A) A $5.50 dividend per share was paid 
B) A $6.50 dividend per share was paid 
C) Net earnings equal $650,000 
D) Total dividends paid equal $50,000 retained earnings = net income less dividends
($50,000) = ($6 x 100,000) less dividends
$450,000 = dividends 
A) A $5.50 dividend per share was paid 
B) A $6.50 dividend per share was paid 
C) Net earnings equal $650,000 
D) Total dividends paid equal $50,000 retained earnings = net income less dividends
($50,000) = ($6 x 100,000) less dividends
$450,000 = dividends

Question 17

A corporation cannot default on debt that is funded.

Accepted Answer

A) True 
 B)False

Question 18

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 19

All of the following are types of innovative bonds except:

Accepted Answer

A) Convertible bonds 
B) Bowie bonds 
C) Reverse floaters 
D) Indexed bonds 
A) Convertible bonds 
B) Bowie bonds 
C) Reverse floaters 
D) Indexed bonds

Question 20

Illustrate the difference between majority and cumulative voting systems using as an example a shareholder who owns 1,000 shares and an election in which three directors will be selected.Why might shareholders care about which voting system is adopted?

Accepted Answer

In the majority voting system, this shar

Exam 14: Introduction to Corporate Financing and Governance

The price at which new shares are issued is referred to as the par value of the stock.

Bonds with the callable feature sell at lower prices than bonds without such a feature.

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

When corporations default on their debt:

Earnings this year for Plasti-tech Inc.were $200,000, of which $60,000 it decided to plow back and 10 % was depreciation.Plasti-tech's internally generated funds are:

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

One common reason for issuing two distinct classes of common stock is to:

Preferred stockholders:

When a firm issues 50,000 shares with a par value of $5 for $22 per share, additional paid in capital will:

What type of voting does a corporation have if there are two directors to elect and Director Jones received 50 votes from a shareholder who owns 100 shares?

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

Market value is usually greater than book value because:

Secured debt is debt that:

Income bonds are unusual.Interest payments on these types of bonds may be skipped or deferred if the firm's income is insufficient to make the payments.In what way are these bonds like preferred stock? Why might a firm choose to issue an income bond instead of a preferred stock?

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?

Which of the following statements is correct for a firm with 100,000 outstanding shares and earnings per share of $6 if retained earnings were just adjusted downward by $50,000?

A corporation cannot default on debt that is funded.

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

All of the following are types of innovative bonds except:

Illustrate the difference between majority and cumulative voting systems using as an example a shareholder who owns 1,000 shares and an election in which three directors will be selected.Why might shareholders care about which voting system is adopted?

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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