Question 1

What is an equity-funded takeover?

Accepted Answer

In the case of a merger or acquisition,a

Question 2

_______ are promised a fixed periodic dividend,the payment of which must be paid before that of ordinary shares.

Accepted Answer

A)  Common shareholders 
B)  Preferred shareholders 
C)  Stakeholders 
D)  Creditors 
A)  Common shareholders 
B)  Preferred shareholders 
C)  Stakeholders 
D)  Creditors

Question 3

Which of the following is NOT an advantage for a company that issues a convertible note?

Accepted Answer

A)  A lower interest rate can be offered, compared with straight debt. 
B)  It offers a method of raising cheap funds for the time being. 
C)  A longer maturity can often be offered. 
D)  There is an increase in financial leverage upon conversion. 
A)  A lower interest rate can be offered, compared with straight debt. 
B)  It offers a method of raising cheap funds for the time being. 
C)  A longer maturity can often be offered. 
D)  There is an increase in financial leverage upon conversion.

Question 4

When a takeover company issues additional shares to fund the acquisition of the shares in a target company this is called:

Accepted Answer

A)  a seasoned share offering. 
B)  an equity-funded takeover. 
C)  an initial share takeover. 
D)  a rights offering. 
A)  a seasoned share offering. 
B)  an equity-funded takeover. 
C)  an initial share takeover. 
D)  a rights offering.

Question 5

Which of the following statements about financial risk is incorrect?

Accepted Answer

A)  A rise in interest rates will adversely affect the cost of a corporation's variable debt. 
B)  If a corporation imports goods from overseas then an appreciation in the exchange rate will adversely affect the company's profits. 
C)  If a company (
A)  has sold goods to another company (
B)  with payment due in 30 days but company B has gone into liquidation then company A faces credit default. 
D)  If a company breaches its debt-to-equity ratio loan covenants the value of the company may be adversely affected. 
A)  A rise in interest rates will adversely affect the cost of a corporation's variable debt. 
B)  If a corporation imports goods from overseas then an appreciation in the exchange rate will adversely affect the company's profits. 
C)  If a company (
A)  has sold goods to another company (
B)  with payment due in 30 days but company B has gone into liquidation then company A faces credit default. 
D)  If a company breaches its debt-to-equity ratio loan covenants the value of the company may be adversely affected.

Question 6

Business risk is determined in part by a corporation's choice of business activity and the manner in which it has financed those activities.

Accepted Answer

A) True 
 B)False

Question 7

When a company undertakes an initial public offering (IPO)it may:

Accepted Answer

A)  issue and list debentures in the capital markets. 
B)  offer shares to a few public institutional investors. 
C)  issue and list shares in the primary share market. 
D)  directly list corporate bonds in the capital markets. 
A)  issue and list debentures in the capital markets. 
B)  offer shares to a few public institutional investors. 
C)  issue and list shares in the primary share market. 
D)  directly list corporate bonds in the capital markets.

Question 8

Share placements may,subject to compliance with certain regulations,be made to institutional investors.Which of the following conditions is NOT a requirement of the Australian authority ASIC for share placements?

Accepted Answer

A)  The placement should consist of minimum subscriptions of $500 000, or be made up of not more than 20 participants. 
B)  The discount from current market price should not be excessive. 
C)  Under no circumstances should placements be in excess of 10% of the issued shares permitted. 
D)  There is no need to register a prospectus, but a memorandum of information detailing the company's activities should be sent to all participants. 
A)  The placement should consist of minimum subscriptions of $500 000, or be made up of not more than 20 participants. 
B)  The discount from current market price should not be excessive. 
C)  Under no circumstances should placements be in excess of 10% of the issued shares permitted. 
D)  There is no need to register a prospectus, but a memorandum of information detailing the company's activities should be sent to all participants.

Question 9

Which of the following is generally NOT a characteristic of rights?

Accepted Answer

A)  No expiration date 
B)  If exercised, results in the dilution of earnings for existing shareholders 
C)  Saleability 
D)  Potential listing on a stock exchange 
A)  No expiration date 
B)  If exercised, results in the dilution of earnings for existing shareholders 
C)  Saleability 
D)  Potential listing on a stock exchange

Question 10

The finance required by a company to fund its day-to-day operations is called:

Accepted Answer

A)  daily financing. 
B)  operational financing. 
C)  operational capital. 
D)  working capital. 
A)  daily financing. 
B)  operational financing. 
C)  operational capital. 
D)  working capital.

Question 11

For a share placement,the Australian authority ASIC requires:

Accepted Answer

A)  that a placement must consist of subscriptions of not less than $1 000 000. 
B)  that any discount from the current market price not be more than 10%. 
C)  a memorandum of information to be sent to all participating institutions. 
D)  a prospectus, which can be filed with them after the event. 
A)  that a placement must consist of subscriptions of not less than $1 000 000. 
B)  that any discount from the current market price not be more than 10%. 
C)  a memorandum of information to be sent to all participating institutions. 
D)  a prospectus, which can be filed with them after the event.

Question 12

For a share placement,the Australian authority ASIC or ASX listing rules require:

Accepted Answer

A)  that a placement must consist of subscriptions of not less than $1 000 000. 
B)  there must be no more than 20 participants. 
C)  the discount from market price must not be above 50 per cent. 
D)  that for a company that has had total placements of more than 15 per cent in the last 12 months, agreement for another must be sought from shareholders at the annual general meeting. 
A)  that a placement must consist of subscriptions of not less than $1 000 000. 
B)  there must be no more than 20 participants. 
C)  the discount from market price must not be above 50 per cent. 
D)  that for a company that has had total placements of more than 15 per cent in the last 12 months, agreement for another must be sought from shareholders at the annual general meeting.

Question 13

When a convertible security is issued,the issue price is usually _______ the current market price of the company's share.

Accepted Answer

A)  well below 
B)  close to 
C)  well above 
D)  not related to 
A)  well below 
B)  close to 
C)  well above 
D)  not related to

Question 14

Which of the following is NOT a feature of a dividend reinvestment scheme for a company?

Accepted Answer

A)  Shareholders can acquire company shares at little or no transaction cost. 
B)  Shareholders can increase their return on the company share concerned. 
C)  The company can obtain additional equity funding. 
D)  The shareholders can redeem shares for dividends. 
A)  Shareholders can acquire company shares at little or no transaction cost. 
B)  Shareholders can increase their return on the company share concerned. 
C)  The company can obtain additional equity funding. 
D)  The shareholders can redeem shares for dividends.

Question 15

Limited liability shares are generally sold to investors on a fully paid basis.

Accepted Answer

A) True 
 B)False

Question 16

A company is advised to issue convertible notes.They are advised of the conditions applicable to the convertible note issue.Which of the following conditions is incorrect?

Accepted Answer

A)  The holder of the note has the right to convert the note into preference shares. 
B)  Notes are generally available on a pro-rata entitlement to shareholders. 
C)  Entitlements to convertible notes are generally not renounceable. 
D)  Notes are usually issued at a price close to the current share price at the time of issue. 
A)  The holder of the note has the right to convert the note into preference shares. 
B)  Notes are generally available on a pro-rata entitlement to shareholders. 
C)  Entitlements to convertible notes are generally not renounceable. 
D)  Notes are usually issued at a price close to the current share price at the time of issue.

Question 17

Compared with retail sector companies,banks have a:

Accepted Answer

A)  high equity-to-debt ratio. 
B)  low gearing ratio. 
C)  high debt-to-equity ratio. 
D)  conservative gearing ratio. 
A)  high equity-to-debt ratio. 
B)  low gearing ratio. 
C)  high debt-to-equity ratio. 
D)  conservative gearing ratio.

Question 18

The main advantage of placements to raise additional equity funds compared to a rights issue is:

Accepted Answer

A)  the discount to current market price may be less. 
B)  it can be carried out much more quickly. 
C)  a selective placement can sell shares to friendly institutional investors. 
D)  it reduces the proportion of ownership by existing shareholders. 
A)  the discount to current market price may be less. 
B)  it can be carried out much more quickly. 
C)  a selective placement can sell shares to friendly institutional investors. 
D)  it reduces the proportion of ownership by existing shareholders.

Question 19

A rights offering is the issue of:

Accepted Answer

A)  proxies to the shareholders to use their voting rights at the annual general meeting. 
B)  options on shares to the general public. 
C)  an option to purchase shares directly to the shareholders. 
D)  special options to the management. 
A)  proxies to the shareholders to use their voting rights at the annual general meeting. 
B)  options on shares to the general public. 
C)  an option to purchase shares directly to the shareholders. 
D)  special options to the management.

Question 20

A company's business risk depends on:

Accepted Answer

A)  its use of debt in financing the business. 
B)  the risk of the company's operations and assets. 
C)  how much debt a company has used. 
D)  the amount of shareholder equity in the company. 
A)  its use of debt in financing the business. 
B)  the risk of the company's operations and assets. 
C)  how much debt a company has used. 
D)  the amount of shareholder equity in the company.

Exam 5: Corporations Issuing Equity in the Share Market

What is an equity-funded takeover?

_______ are promised a fixed periodic dividend,the payment of which must be paid before that of ordinary shares.

Which of the following is NOT an advantage for a company that issues a convertible note?

When a takeover company issues additional shares to fund the acquisition of the shares in a target company this is called:

Which of the following statements about financial risk is incorrect?

Business risk is determined in part by a corporation's choice of business activity and the manner in which it has financed those activities.

When a company undertakes an initial public offering (IPO)it may:

Share placements may,subject to compliance with certain regulations,be made to institutional investors.Which of the following conditions is NOT a requirement of the Australian authority ASIC for share placements?

Which of the following is generally NOT a characteristic of rights?

The finance required by a company to fund its day-to-day operations is called:

For a share placement,the Australian authority ASIC requires:

For a share placement,the Australian authority ASIC or ASX listing rules require:

When a convertible security is issued,the issue price is usually _______ the current market price of the company's share.

Which of the following is NOT a feature of a dividend reinvestment scheme for a company?

Limited liability shares are generally sold to investors on a fully paid basis.

A company is advised to issue convertible notes.They are advised of the conditions applicable to the convertible note issue.Which of the following conditions is incorrect?

Compared with retail sector companies,banks have a:

The main advantage of placements to raise additional equity funds compared to a rights issue is:

A rights offering is the issue of:

A company's business risk depends on:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

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