Question 1

Which of the following statements is false?

Accepted Answer

A)  Creditors do not have voting power. 
B)  Payment on interest on debt in considered an expense, while payment of dividends is a return on capital. 
C)  Unpaid debt is a liability of the firm, and if not paid, can result in liquidation of the firm. Unpaid common stock dividends cannot force liquidation. 
D)  One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt. 
E)  None of these. 
A)  Creditors do not have voting power. 
B)  Payment on interest on debt in considered an expense, while payment of dividends is a return on capital. 
C)  Unpaid debt is a liability of the firm, and if not paid, can result in liquidation of the firm. Unpaid common stock dividends cannot force liquidation. 
D)  One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt. 
E)  None of these.

Question 2

The written agreement between a corporation and its bondholders is called:

Accepted Answer

A)  the collateral agreement. 
B)  the deed. 
C)  the indenture. 
D)  the deed of conveyance. 
E)  None of these. 
A)  the collateral agreement. 
B)  the deed. 
C)  the indenture. 
D)  the deed of conveyance. 
E)  None of these.

Question 3

Holden Bicycles has 1,000 shares outstanding each with a par value of $0.10. If they are sold to shareholders at $10 each,what would the capital surplus be?

Accepted Answer

A)  $100 
B)  $900 
C)  $9,900 
D)  $10,000 
E)  $11,000 
A)  $100 
B)  $900 
C)  $9,900 
D)  $10,000 
E)  $11,000

Question 4

If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.

Accepted Answer

A)  proxy fight 
B)  stockholder derivative action 
C)  tender offer 
D)  vote of confidence 
E)  None of these. 
A)  proxy fight 
B)  stockholder derivative action 
C)  tender offer 
D)  vote of confidence 
E)  None of these.

Question 5

A grant of authority allowing someone else to vote shares of stock that you own is called:

Accepted Answer

A)  a power-of-share authorization. 
B)  a proxy. 
C)  a share authority grant (SAG). 
D)  a restricted conveyance. 
E)  None of these. 
A)  a power-of-share authorization. 
B)  a proxy. 
C)  a share authority grant (SAG). 
D)  a restricted conveyance. 
E)  None of these.

Question 6

A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into a(n):

Accepted Answer

A)  custodial account. 
B)  sinking fund. 
C)  retirement fund. 
D)  irrevocable trustee fund. 
E)  None of these. 
A)  custodial account. 
B)  sinking fund. 
C)  retirement fund. 
D)  irrevocable trustee fund. 
E)  None of these.

Question 7

There are 3 directors' seats up for election. If you own 1,000 shares of stock and you can cast 3,000 votes for a particular director,this is illustrative of:

Accepted Answer

A)  cumulative voting. 
B)  absolute priority voting. 
C)  sequential voting. 
D)  straight voting. 
E)  None of these. 
A)  cumulative voting. 
B)  absolute priority voting. 
C)  sequential voting. 
D)  straight voting. 
E)  None of these.

Question 8

Preferred stock may exist because:

Accepted Answer

A)  losses before income taxes prevent a company from enjoying the tax advantages of debt interest while there is no tax advantage for preferred dividends. 
B)  an advantage exists for the firm; preferred shareholders cannot force the company into bankruptcy because of unpaid dividends. 
C)  corporations get a 70% tax exemption on preferred dividends received. 
D)  All of these. 
E)  None of these. 
A)  losses before income taxes prevent a company from enjoying the tax advantages of debt interest while there is no tax advantage for preferred dividends. 
B)  an advantage exists for the firm; preferred shareholders cannot force the company into bankruptcy because of unpaid dividends. 
C)  corporations get a 70% tax exemption on preferred dividends received. 
D)  All of these. 
E)  None of these.

Question 9

There was an upward trend in the ratio of the book value of debt to the book value of debt and equity throughout the 1990s. Some of this was due to the repurchasing of stock. The market value ratio of debt to debt and equity exhibited no upward trend. This can be explained by:

Accepted Answer

A)  the change in the accounting rules of the period. 
B)  the difference between tax accounting and accounting for financial accounting purposes. 
C)  a large increase in the market value of equity that was greater than the increase in debt. 
D)  All of these. 
E)  None of these. 
A)  the change in the accounting rules of the period. 
B)  the difference between tax accounting and accounting for financial accounting purposes. 
C)  a large increase in the market value of equity that was greater than the increase in debt. 
D)  All of these. 
E)  None of these.

Question 10

If you own 1,000 shares of stock and you can cast only 1,000 votes for a particular director,then the stock features:

Accepted Answer

A)  cumulative voting. 
B)  absolute priority voting. 
C)  sequential voting. 
D)  straight voting. 
E)  None of these. 
A)  cumulative voting. 
B)  absolute priority voting. 
C)  sequential voting. 
D)  straight voting. 
E)  None of these.

Question 11

Unsecured corporate debt is called a(n):

Accepted Answer

A)  indenture. 
B)  debenture. 
C)  bond. 
D)  mortgage. 
E)  None of these. 
A)  indenture. 
B)  debenture. 
C)  bond. 
D)  mortgage. 
E)  None of these.

Question 12

Different classes of stock usually are issued to:

Accepted Answer

A)  maintain ownership control by holding the class of stock with greater voting rights. 
B)  pay less in dividends between the classes of stock. 
C)  fool investors into thinking that equity is equity and there is no difference in control or value features. 
D)  extract perquisites without the other class of stockholders knowing. 
E)  None of these. 
A)  maintain ownership control by holding the class of stock with greater voting rights. 
B)  pay less in dividends between the classes of stock. 
C)  fool investors into thinking that equity is equity and there is no difference in control or value features. 
D)  extract perquisites without the other class of stockholders knowing. 
E)  None of these.

Question 13

Corporate financial officers prefer to use book values when measuring debt ratios because:

Accepted Answer

A)  book values are more stable than market values. 
B)  debt covenant restrictions are usually expressed in book value terms. 
C)  rating agencies measure debt ratios in book values terms. 
D)  All of these. 
E)  None of these. 
A)  book values are more stable than market values. 
B)  debt covenant restrictions are usually expressed in book value terms. 
C)  rating agencies measure debt ratios in book values terms. 
D)  All of these. 
E)  None of these.

Question 14

Technically speaking,a long-term corporate debt offering that features a specific attachment to corporate property is generally called:

Accepted Answer

A)  a debenture. 
B)  a bond. 
C)  a long-term liability. 
D)  a preferred liability. 
E)  None of these. 
A)  a debenture. 
B)  a bond. 
C)  a long-term liability. 
D)  a preferred liability. 
E)  None of these.

Question 15

The market value of the ownership of the firm equals:

Accepted Answer

A)  the market price of the stock times the number of shares outstanding. 
B)  the sum of the market price of the bonds and the stock. 
C)  the par value of the stock times the number of shares outstanding. 
D)  the market price of the stock minus the retained earnings. 
E)  None of these. 
A)  the market price of the stock times the number of shares outstanding. 
B)  the sum of the market price of the bonds and the stock. 
C)  the par value of the stock times the number of shares outstanding. 
D)  the market price of the stock minus the retained earnings. 
E)  None of these.

Question 16

Michael's Motor Scooters has 1,000 shares outstanding each with a par value of $0.05. If they are sold to shareholders at $5 each,what would the capital surplus be?

Accepted Answer

A)  $4,400 
B)  $4,500 
C)  $4,750 
D)  $4,950 
E)  $5,000 
A)  $4,400 
B)  $4,500 
C)  $4,750 
D)  $4,950 
E)  $5,000

Question 17

The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings. This prohibition is an example of a(n):

Accepted Answer

A)  maintenance of security provision. 
B)  collateral restriction. 
C)  affirmative indenture. 
D)  restrictive covenant. 
E)  None of these. 
A)  maintenance of security provision. 
B)  collateral restriction. 
C)  affirmative indenture. 
D)  restrictive covenant. 
E)  None of these.

Question 18

Debt that may be extinguished before maturity is referred to as:

Accepted Answer

A)  sinking-fund debt. 
B)  debentures. 
C)  callable debt. 
D)  indenture debt. 
E)  None of these. 
A)  sinking-fund debt. 
B)  debentures. 
C)  callable debt. 
D)  indenture debt. 
E)  None of these.

Question 19

Mike's Mopeds used internal financing as a source of long-term financing for 70% of its total needs in 2011. The company borrowed an additional 20% 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 20

Shareholders usually have which of the following right(s)?

Accepted Answer

A)  To elect board members, the authorizing of new shares and other matters of great importance to shareholders such as being acquired. 
B)  To share proportionally in regular and liquidating dividends. 
C)  To share proportionally in any new stock sold. 
D)  All of these. 
E)  None of these. 
A)  To elect board members, the authorizing of new shares and other matters of great importance to shareholders such as being acquired. 
B)  To share proportionally in regular and liquidating dividends. 
C)  To share proportionally in any new stock sold. 
D)  All of these. 
E)  None of these.

Exam 15: Long-Term Financing

Which of the following statements is false?

The written agreement between a corporation and its bondholders is called:

Holden Bicycles has 1,000 shares outstanding each with a par value of $0.10. If they are sold to shareholders at $10 each,what would the capital surplus be?

If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.

A grant of authority allowing someone else to vote shares of stock that you own is called:

A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into a(n):

There are 3 directors' seats up for election. If you own 1,000 shares of stock and you can cast 3,000 votes for a particular director,this is illustrative of:

Preferred stock may exist because:

There was an upward trend in the ratio of the book value of debt to the book value of debt and equity throughout the 1990s. Some of this was due to the repurchasing of stock. The market value ratio of debt to debt and equity exhibited no upward trend. This can be explained by:

If you own 1,000 shares of stock and you can cast only 1,000 votes for a particular director,then the stock features:

Unsecured corporate debt is called a(n):

Different classes of stock usually are issued to:

Corporate financial officers prefer to use book values when measuring debt ratios because:

Technically speaking,a long-term corporate debt offering that features a specific attachment to corporate property is generally called:

The market value of the ownership of the firm equals:

Michael's Motor Scooters has 1,000 shares outstanding each with a par value of $0.05. If they are sold to shareholders at $5 each,what would the capital surplus be?

The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings. This prohibition is an example of a(n):

Debt that may be extinguished before maturity is referred to as:

Mike's Mopeds used internal financing as a source of long-term financing for 70% of its total needs in 2011. The company borrowed an additional 20% 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?

Shareholders usually have which of the following right(s)?

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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