Question 1

A eurobond is defined as any bond that is denominated in euros.

Accepted Answer

A) True 
 B)False

Question 2

Suppose a firm needs fresh capital,but its management does not want to give up its controlling interest.The existing shares could be labeled Class A,and then Class B shares with limited voting rights could be issued to outside investors.

Accepted Answer

A) True 
 B)False

Question 3

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 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 will benefit if the firm's stock does well.

Question 4

Preferred stockholders generally:

Accepted Answer

A)  have full voting rights. 
B)  receive a fixed dividend. 
C)  have priority over debt holders if the company goes bankrupt. 
D)  convert to bond holders. 
A)  have full voting rights. 
B)  receive a fixed dividend. 
C)  have priority over debt holders if the company goes bankrupt. 
D)  convert to bond holders.

Question 5

A corporation cannot default on funded debt.

Accepted Answer

A) True 
 B)False

Question 6

What is the most commonly bundled type of loan in the asset-backed bond category?

Accepted Answer

A)  Automobile loans 
B)  Mortgages 
C)  Credit card receivables 
D)  Student loans 
A)  Automobile loans 
B)  Mortgages 
C)  Credit card receivables 
D)  Student loans

Question 7

When a firm issues 50,000 shares with a par value of $5 and a market price of $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 8

A firm's internally generated funds are calculated by:

Accepted Answer

A)  subtracting depreciation from net income. 
B)  adding depreciation to net income. 
C)  adding dividends to net income. 
D)  subtracting dividends from net income plus depreciation. 
A)  subtracting depreciation from net income. 
B)  adding depreciation to net income. 
C)  adding dividends to net income. 
D)  subtracting dividends from net income plus depreciation.

Question 9

An efficient capital market is one in which:

Accepted Answer

A)  all securities that investors desire are offered. 
B)  all transactions are closed within 2 business days. 
C)  current prices reflect all current information. 
D)  the lowest interest rates are offered. 
A)  all securities that investors desire are offered. 
B)  all transactions are closed within 2 business days. 
C)  current prices reflect all current information. 
D)  the lowest interest rates are offered.

Question 10

Preferred stock dividends:

Accepted Answer

A)  have preference over bond interest payments. 
B)  are guaranteed to be paid at least annually. 
C)  are excluded from the taxable income of their recipients. 
D)  have priority over common stock dividends. 
A)  have preference over bond interest payments. 
B)  are guaranteed to be paid at least annually. 
C)  are excluded from the taxable income of their recipients. 
D)  have priority over common stock dividends.

Question 11

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 12

Bonds that have been sold only to a limited number of institutional investors are considered:

Accepted Answer

A)  secured bonds. 
B)  convertible bonds. 
C)  private placements. 
D)  indexed bonds. 
A)  secured bonds. 
B)  convertible bonds. 
C)  private placements. 
D)  indexed bonds.

Question 13

Different classes of stock often have different voting rights.

Accepted Answer

A) True 
 B)False

Question 14

Shares of stock that have been issued and subsequently repurchased by the issuer are known as treasury stock.

Accepted Answer

A) True 
 B)False

Question 15

Only a portion of the board of directors are up for election in any given year when a firm has a classified board.

Accepted Answer

A) True 
 B)False

Question 16

Holders of callable bonds know that the company will wish to buy the issue back if interest rates fall,and therefore the price of the bond will not rise above the call price.

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following statements is typically correct for a going-concern firm?

Accepted Answer

A)  Book value of equity exceeds market value of equity. 
B)  Market value of equity exceeds book value of equity. 
C)  Book value of equity equals market value of equity. 
D)  No typical relationship exists between book and market values of equity. 
A)  Book value of equity exceeds market value of equity. 
B)  Market value of equity exceeds book value of equity. 
C)  Book value of equity equals market value of equity. 
D)  No typical relationship exists between book and market values of equity.

Question 18

Funded debt refers to those liabilities that:

Accepted Answer

A)  have established a sinking fund for repayment. 
B)  are not callable at the option of the firm. 
C)  are secured by specific collateral. 
D)  have a maturity of more than one year remaining. 
A)  have established a sinking fund for repayment. 
B)  are not callable at the option of the firm. 
C)  are secured by specific collateral. 
D)  have a maturity of more than one year remaining.

Question 19

Additional paid-in capital refers to:

Accepted Answer

A)  a firm's retained earnings. 
B)  a firm's treasury stock. 
C)  the difference between the issue price and the par value. 
D)  funds borrowed from a bank or bondholders. 
A)  a firm's retained earnings. 
B)  a firm's treasury stock. 
C)  the difference between the issue price and the par value. 
D)  funds borrowed from a bank or bondholders.

Question 20

If financial markets were not efficient,it would be easier for firms to:

Accepted Answer

A)  finance investments in a zero-NPV transaction. 
B)  finance investments in a positive NPV transaction. 
C)  totally avoid the need for external financing. 
D)  finance investments in a negative NPV transaction. 
A)  finance investments in a zero-NPV transaction. 
B)  finance investments in a positive NPV transaction. 
C)  totally avoid the need for external financing. 
D)  finance investments in a negative NPV transaction.

Exam 14: Introduction to Corporate Financing and Governance

A eurobond is defined as any bond that is denominated in euros.

Suppose a firm needs fresh capital,but its management does not want to give up its controlling interest.The existing shares could be labeled Class A,and then Class B shares with limited voting rights could be issued to outside investors.

Which one of the following statements is correct?

Preferred stockholders generally:

A corporation cannot default on funded debt.

What is the most commonly bundled type of loan in the asset-backed bond category?

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

A firm's internally generated funds are calculated by:

An efficient capital market is one in which:

Preferred stock dividends:

With respect to bonds,when interest rates increase typically:

Bonds that have been sold only to a limited number of institutional investors are considered:

Different classes of stock often have different voting rights.

Shares of stock that have been issued and subsequently repurchased by the issuer are known as treasury stock.

Only a portion of the board of directors are up for election in any given year when a firm has a classified board.

Holders of callable bonds know that the company will wish to buy the issue back if interest rates fall,and therefore the price of the bond will not rise above the call price.

Which one of the following statements is typically correct for a going-concern firm?

Funded debt refers to those liabilities that:

Additional paid-in capital refers to:

If financial markets were not efficient,it would be easier for firms to:

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

Filters