Question 1

Convertible bonds resemble a combination of which two types of securities?

Accepted Answer

A)  Investment grade bonds and junk bonds 
B)  Bonds and common stock 
C)  Bonds and warrants 
D) Bonds and preferred stock 
A)  Investment grade bonds and junk bonds 
B)  Bonds and common stock 
C)  Bonds and warrants 
D) Bonds and preferred stock

Question 2

Which one of the following statements is correct?

Accepted Answer

A)  A convertible bondholder is forced to convert no later than a pre-specified time. 
B)  The convertible option on a bond gives the owner the right to buy shares from a company at a pre-determined cash price. 
C)  The owner of a warrant has an option to convert the warrant into convertible bonds. 
D) The owner of a warrant option will benefit if the firm's stock does well. 
A)  A convertible bondholder is forced to convert no later than a pre-specified time. 
B)  The convertible option on a bond gives the owner the right to buy shares from a company at a pre-determined cash price. 
C)  The owner of a warrant has an option to convert the warrant into convertible bonds. 
D) The owner of a warrant option will benefit if the firm's stock does well.

Question 3

Firms have the right to resell any Treasury stock they own.

Accepted Answer

A) True 
 B)False

Question 4

The price at which new shares are sold to investors almost always exceeds par value. The difference is entered into the company's accounts as additional paid-in capital, or capital surplus.

Accepted Answer

A) True 
 B)False

Question 5

With respect to bonds, when interest rates increase typically:

Accepted Answer

A)  the coupon rate on existing bonds also increases. 
B)  the coupon rate on existing bonds remains unchanged. 
C)  bond prices also increase. 
D) bond prices remain constant. 
A)  the coupon rate on existing bonds also increases. 
B)  the coupon rate on existing bonds remains unchanged. 
C)  bond prices also increase. 
D) bond prices remain constant.

Question 6

Which one of the following is least likely to contribute to the positive-NPV investments found in product markets?

Accepted Answer

A)  Patented-production processes 
B)  Financing strategies 
C)  Brand-name product recognition 
D) Lack of competition 
A)  Patented-production processes 
B)  Financing strategies 
C)  Brand-name product recognition 
D) Lack of competition

Question 7

Corporate investors are indifferent between investing in common and preferred shares.

Accepted Answer

A) True 
 B)False

Question 8

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital is $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 9

Preferred stock of financially strong firms sometimes sells at lower yields than the bonds of those firms. For weaker firms, the preferred stock has a higher yield. What might explain this pattern?

Accepted Answer

In general, the fact that preferred stoc

Question 10

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 are being held 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 are being held in cash. 
C)  over and above corporate income taxes. 
D) reinvested in the firm since its inception.

Question 11

All of the following are true of retained earnings except:

Accepted Answer

A)  it is the difference between paid-in capital and the total dividends paid. 
B)  it represents the amount of new capital shareholders indirectly contributed. 
C)  it is equal to earnings times the quantity one minus the payout ratio. 
D) it is the amount of earnings plowed back into the firm. 
A)  it is the difference between paid-in capital and the total dividends paid. 
B)  it represents the amount of new capital shareholders indirectly contributed. 
C)  it is equal to earnings times the quantity one minus the payout ratio. 
D) it is the amount of earnings plowed back into the firm.

Question 12

Warrants:

Accepted Answer

A)  allow their holder to purchase shares at the current market price. 
B)  have a guaranteed maturity value. 
C)  grant the option to purchase either stocks or bonds at the holders discretion. 
D) have an expiration date. 
A)  allow their holder to purchase shares at the current market price. 
B)  have a guaranteed maturity value. 
C)  grant the option to purchase either stocks or bonds at the holders discretion. 
D) have an expiration date.

Question 13

When new shares of stock are sold at a price greater than par value, the excess over par is recorded as:

Accepted Answer

A)  capital surplus. 
B)  retained earnings. 
C)  treasury stock. 
D) authorized capital. 
A)  capital surplus. 
B)  retained earnings. 
C)  treasury stock. 
D) authorized capital.

Question 14

Assume a corporation has cumulative voting and there are two directors up for election. What is the maximum number of votes a shareholder who owns 100 shares can cast for Candidate Jones if there are a total of 5 candidates?

Accepted Answer

A)  20 
B)  40 
C)  100 
D) 200 
A)  20 
B)  40 
C)  100 
D) 200

Question 15

If a corporation issues 1,000 shares of $1 par value stock for $10 per share, then retained earnings will:

Accepted Answer

A)  increase by $1,000. 
B)  increase by $9,000. 
C)  decrease by $9,000. 
D) remain unchanged. 
A)  increase by $1,000. 
B)  increase by $9,000. 
C)  decrease by $9,000. 
D) remain unchanged.

Question 16

Dividends represent an important component of a firm's net book value.

Accepted Answer

A) True 
 B)False

Question 17

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 18

The NYSE requires that a majority of a firm's directors must be independent of the firm's management.

Accepted Answer

A) True 
 B)False

Question 19

Which one of the following statements is correct concerning stock dividends?

Accepted Answer

A)  Common stock dividends cannot be paid if preferred stock dividends are in arrears. 
B)  Preferred stock dividends cannot be paid if common stock dividends are in arrears. 
C)  Common and preferred dividends must be paid simultaneously. 
D) No stock dividends can be paid without specific shareholder approval. 
A)  Common stock dividends cannot be paid if preferred stock dividends are in arrears. 
B)  Preferred stock dividends cannot be paid if common stock dividends are in arrears. 
C)  Common and preferred dividends must be paid simultaneously. 
D) No stock dividends can be paid without specific shareholder approval.

Question 20

Wheat's Market just issued $350,000 of new common stock at a price of $20 a share. How will this transaction affect the equity accounts on the firm's balance sheet if the par value is $1 per share?

Accepted Answer

A)  The common stock account will increase by $350,000. 
B)  The common stock account will decrease by $17,500. 
C)  Paid in surplus will increase by $332,500. 
D) Paid in surplus will increase by $350,000. 
A)  The common stock account will increase by $350,000. 
B)  The common stock account will decrease by $17,500. 
C)  Paid in surplus will increase by $332,500. 
D) Paid in surplus will increase by $350,000.

Exam 14: Introduction to Corporate Financing

Convertible bonds resemble a combination of which two types of securities?

Which one of the following statements is correct?

Firms have the right to resell any Treasury stock they own.

The price at which new shares are sold to investors almost always exceeds par value. The difference is entered into the company's accounts as additional paid-in capital, or capital surplus.

With respect to bonds, when interest rates increase typically:

Which one of the following is least likely to contribute to the positive-NPV investments found in product markets?

Corporate investors are indifferent between investing in common and preferred shares.

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital is $800 million, the total par value of the issued shares is:

Preferred stock of financially strong firms sometimes sells at lower yields than the bonds of those firms. For weaker firms, the preferred stock has a higher yield. What might explain this pattern?

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

All of the following are true of retained earnings except:

Warrants:

When new shares of stock are sold at a price greater than par value, the excess over par is recorded as:

Assume a corporation has cumulative voting and there are two directors up for election. What is the maximum number of votes a shareholder who owns 100 shares can cast for Candidate Jones if there are a total of 5 candidates?

If a corporation issues 1,000 shares of $1 par value stock for $10 per share, then retained earnings will:

Dividends represent an important component of a firm's net book value.

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

The NYSE requires that a majority of a firm's directors must be independent of the firm's management.

Which one of the following statements is correct concerning stock dividends?

Wheat's Market just issued $350,000 of new common stock at a price of $20 a share. How will this transaction affect the equity accounts on the firm's balance sheet if the par value is $1 per share?

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

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

Filters