Question 1

Preferred stock may be desirable to issue for which of the following reason(s)?

Accepted Answer

A)  If there is no taxable income, preferred stock does not impose a tax penalty. 
B)  The failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy. 
C)  Preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income. 
D)  Both the failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy; and preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income. 
E)  Both if there is no taxable income, preferred stock does not impose a tax penalty; and the failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy. 
A)  If there is no taxable income, preferred stock does not impose a tax penalty. 
B)  The failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy. 
C)  Preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income. 
D)  Both the failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy; and preferred dividends are not tax deductible and therefore will not provide a tax shield but will reduce net income. 
E)  Both if there is no taxable income, preferred stock does not impose a tax penalty; and the failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy. E

Question 2

James Yachts has 2,000 shares outstanding each with a par value of $0.07. If they are sold to shareholders at $7 each,what would the capital surplus be?

Accepted Answer

A)  $10,000 
B)  $12,140 
C)  $13,250 
D)  $13.860 
E)  $14,000 
A)  $10,000 
B)  $12,140 
C)  $13,250 
D)  $13.860 
E)  $14,000 D

Question 3

If a long-term debt instrument is perpetual,it is called a(n):

Accepted Answer

A)  secured debt issue. 
B)  subordinated debt issue. 
C)  consol. 
D)  capital debt issue. 
E)  indenturE. 
A)  secured debt issue. 
B)  subordinated debt issue. 
C)  consol. 
D)  capital debt issue. 
E)  indenturE. C

Question 4

Calhoun Computech used internal financing as a source of long-term financing for 80% of its total needs in 2011. The company borrowed an additional 15% of its total needs in the long-term debt markets in 2011. What were Calhoun's net new stock issues,in percentage terms,for 2011?

Accepted Answer

A)  -10% 
B)  -5% 
C)  5% 
D)  10% 
E)  15% 
A)  -10% 
B)  -5% 
C)  5% 
D)  10% 
E)  15%

Question 5

The amount of loan a person or firm borrows from a lender is the:

Accepted Answer

A)  creditor. 
B)  indenture. 
C)  debenture. 
D)  principal. 
E)  amortization. 
A)  creditor. 
B)  indenture. 
C)  debenture. 
D)  principal. 
E)  amortization.

Question 6

The Lory Bookstore used internal financing as a source of long-term financing for 80% of its total needs in 2011. The company borrowed an additional 27% of its total needs in the long-term debt markets in 2011. What were Lory's net new stock issues in that year?

Accepted Answer

A)  -20% 
B)  -7% 
C)  7% 
D)  20% 
E)  27% 
A)  -20% 
B)  -7% 
C)  7% 
D)  20% 
E)  27%

Question 7

Not paying the dividends on a cumulative preferred issue may result in:

Accepted Answer

A)  preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid. 
B)  voting rights are granted to preferred stockholders if preferred dividends are in arrears. 
C)  no payment of dividends to common shareholders. 
D)  Both preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid; and voting rights are granted to preferred stockholders if preferred dividends are in arrears. 
E)  Both voting rights are granted to preferred stockholders if preferred dividends are in arrears; and no payment of dividends to common shareholders. 
A)  preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid. 
B)  voting rights are granted to preferred stockholders if preferred dividends are in arrears. 
C)  no payment of dividends to common shareholders. 
D)  Both preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid; and voting rights are granted to preferred stockholders if preferred dividends are in arrears. 
E)  Both voting rights are granted to preferred stockholders if preferred dividends are in arrears; and no payment of dividends to common shareholders.

Question 8

Preferred stock has both a tax advantage and a tax disadvantage. These two are:

Accepted Answer

A)  in default there are no taxes and dividends are taxed in corporate hands at 70%. 
B)  corporate dividends are taxed on 30% of the dividends received and expenses are deductible. 
C)  dividends are not a tax-deductible expense but are 70% exempt from corporate taxation. 
D)  dividends are fully tax deductible but are not equity capital. 
E)  None of these. 
A)  in default there are no taxes and dividends are taxed in corporate hands at 70%. 
B)  corporate dividends are taxed on 30% of the dividends received and expenses are deductible. 
C)  dividends are not a tax-deductible expense but are 70% exempt from corporate taxation. 
D)  dividends are fully tax deductible but are not equity capital. 
E)  None of these.

Question 9

Corporations try to create hybrid securities that look like equity but are called debt because:

Accepted Answer

A)  debt interest expense is tax deductible. 
B)  bankruptcy costs are eliminated or reduced. 
C)  these securities have lower risk than debt. 
D)  Both debt interest expense is tax deductible; and these securities have lower risk than debt. 
E)  Both debt interest expense is tax deductible; and bankruptcy costs are eliminated or reduced. 
A)  debt interest expense is tax deductible. 
B)  bankruptcy costs are eliminated or reduced. 
C)  these securities have lower risk than debt. 
D)  Both debt interest expense is tax deductible; and these securities have lower risk than debt. 
E)  Both debt interest expense is tax deductible; and bankruptcy costs are eliminated or reduced.

Question 10

Different countries have different sources of funds. For example,in the United States,internally generated funds count for over 4/5 of all funds while in Japan,it is about ½ with externally generated funds making up the remainder. The disparities are less in the United Kingdom and Germany,with about 2/3 of funds coming from internal sources. Discuss this disparity and why it might exist.

Accepted Answer

Firms in the United States generate more

Question 11

Financial economists prefer to use market values when measuring debt ratios because:

Accepted Answer

A)  market values are more stable than book values. 
B)  market values are a better reflection of current value than historical value. 
C)  market values are readily available and do not have to be calculated like book values. 
D)  market values are more difficult to calculate which makes financial economists more valuable. 
E)  None of these. 
A)  market values are more stable than book values. 
B)  market values are a better reflection of current value than historical value. 
C)  market values are readily available and do not have to be calculated like book values. 
D)  market values are more difficult to calculate which makes financial economists more valuable. 
E)  None of these.

Question 12

If a debenture is subordinated,it:

Accepted Answer

A)  has a higher priority status than specified creditors. 
B)  is secondary to equity. 
C)  must give preference to the specified creditor in the event of default. 
D)  has been issued because the company is in default. 
E)  None of these. 
A)  has a higher priority status than specified creditors. 
B)  is secondary to equity. 
C)  must give preference to the specified creditor in the event of default. 
D)  has been issued because the company is in default. 
E)  None of these.

Question 13

If a firm retires or extinguishes a debt issue before maturity,the specific amount they pay is:

Accepted Answer

A)  the amortization amount. 
B)  the call price. 
C)  the sinking fund amount. 
D)  the spread premium. 
E)  None of these. 
A)  the amortization amount. 
B)  the call price. 
C)  the sinking fund amount. 
D)  the spread premium. 
E)  None of these.

Question 14

Holden Bicycles has 2,000 shares outstanding each with a par value of $0.50. If they are sold to shareholders at $12 each,what would the capital surplus be?

Accepted Answer

A)  $1,000 
B)  $12,000 
C)  $15,000 
D)  $23,000 
E)  $24,000 
A)  $1,000 
B)  $12,000 
C)  $15,000 
D)  $23,000 
E)  $24,000

Question 15

Information on shareholder's equity as currently shown on the books of the Eaton Corporation is given as:
   Rework the shareholder's equity as it appears on the books if the company issues 40,000 new shares of common at $70 per share.

Accepted Answer

The answer of Information on shareholder's equity as currently shown...

Question 16

Shares of stock that have been repurchased by the corporation are called:

Accepted Answer

A)  treasury stock. 
B)  undistributed capital stock. 
C)  retained equity. 
D)  capital surplus shares. 
E)  None of these. 
A)  treasury stock. 
B)  undistributed capital stock. 
C)  retained equity. 
D)  capital surplus shares. 
E)  None of these.

Question 17

Which of the following statements about preferred stock is true?

Accepted Answer

A)  Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense. 
B)  Unpaid dividends on preferred stock are a debt of the corporation. 
C)  If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year. 
D)  There is no difference in the voting rights of preferred and common stockholders. 
E)  None of these. 
A)  Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense. 
B)  Unpaid dividends on preferred stock are a debt of the corporation. 
C)  If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year. 
D)  There is no difference in the voting rights of preferred and common stockholders. 
E)  None of these.

Question 18

The book capital of a corporation is determined by:

Accepted Answer

A)  the sum of the capital in excess of par and the retained earnings. 
B)  the par value of preferred stock. 
C)  the sum of the treasury stock and the preferred stock. 
D)  the number of shares issued multiplied by the par value of each share. 
E)  the market price of the company's debt. 
A)  the sum of the capital in excess of par and the retained earnings. 
B)  the par value of preferred stock. 
C)  the sum of the treasury stock and the preferred stock. 
D)  the number of shares issued multiplied by the par value of each share. 
E)  the market price of the company's debt.

Question 19

The Lory Bookstore used internal financing as a source of long-term financing for 85% of its total needs in 2011. The company borrowed an additional 25% of its total needs in the long-term debt markets in 2011. What were Lory's net new stock issues in that year?

Accepted Answer

A)  -20% 
B)  -10% 
C)  10% 
D)  20% 
E)  30% 
A)  -20% 
B)  -10% 
C)  10% 
D)  20% 
E)  30%

Question 20

If cumulative voting is permitted:

Accepted Answer

A)  the total number of votes a shareholder has is equal to the number of shares owned. 
B)  the total number of votes a shareholder has is equal to the number of shares owned times the average number of years the shareholder has owned the shares. 
C)  the total number of votes a shareholder has can be calculated as the number of shares owned times the number of directors to be elected. 
D)  the total number of votes a shareholder has is equal to the number of shares times the number of board meetings the shareholder has attended. 
E)  None of these. 
A)  the total number of votes a shareholder has is equal to the number of shares owned. 
B)  the total number of votes a shareholder has is equal to the number of shares owned times the average number of years the shareholder has owned the shares. 
C)  the total number of votes a shareholder has can be calculated as the number of shares owned times the number of directors to be elected. 
D)  the total number of votes a shareholder has is equal to the number of shares times the number of board meetings the shareholder has attended. 
E)  None of these.

Exam 15: Long-Term Financing

Preferred stock may be desirable to issue for which of the following reason(s)?

James Yachts has 2,000 shares outstanding each with a par value of $0.07. If they are sold to shareholders at $7 each,what would the capital surplus be?

If a long-term debt instrument is perpetual,it is called a(n):

Calhoun Computech used internal financing as a source of long-term financing for 80% of its total needs in 2011. The company borrowed an additional 15% of its total needs in the long-term debt markets in 2011. What were Calhoun's net new stock issues,in percentage terms,for 2011?

The amount of loan a person or firm borrows from a lender is the:

The Lory Bookstore used internal financing as a source of long-term financing for 80% of its total needs in 2011. The company borrowed an additional 27% of its total needs in the long-term debt markets in 2011. What were Lory's net new stock issues in that year?

Not paying the dividends on a cumulative preferred issue may result in:

Preferred stock has both a tax advantage and a tax disadvantage. These two are:

Corporations try to create hybrid securities that look like equity but are called debt because:

Financial economists prefer to use market values when measuring debt ratios because:

If a debenture is subordinated,it:

If a firm retires or extinguishes a debt issue before maturity,the specific amount they pay is:

Holden Bicycles has 2,000 shares outstanding each with a par value of $0.50. If they are sold to shareholders at $12 each,what would the capital surplus be?

Information on shareholder's equity as currently shown on the books of the Eaton Corporation is given as: Rework the shareholder's equity as it appears on the books if the company issues 40,000 new shares of common at $70 per share.

Shares of stock that have been repurchased by the corporation are called:

Which of the following statements about preferred stock is true?

The book capital of a corporation is determined by:

The Lory Bookstore used internal financing as a source of long-term financing for 85% of its total needs in 2011. The company borrowed an additional 25% of its total needs in the long-term debt markets in 2011. What were Lory's net new stock issues in that year?

If cumulative voting is permitted:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: The Arbitrage Pricing Theory

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers, Acquisitions, and Divestitures

Financial Distress

International Corporate Finance

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