Question 1

The system of electing a board of directors where each director is voted on separately is known as:

Accepted Answer

A)  majority voting. 
B)  supermajority voting. 
C)  cumulative voting. 
D)  proxy voting. 
A)  majority voting. 
B)  supermajority voting. 
C)  cumulative voting. 
D)  proxy voting.

Question 2

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 3

Callable bonds may be repurchased by the issuing firm before maturity at the specified call price.

Accepted Answer

A) True 
 B)False

Question 4

A stock's par value is the:

Accepted Answer

A)  maturity value of the stock. 
B)  price at which each share is recorded. 
C)  price at which an investor could sell the stock. 
D)  price received by the firm when the stock was issued. 
A)  maturity value of the stock. 
B)  price at which each share is recorded. 
C)  price at which an investor could sell the stock. 
D)  price received by the firm when the stock was issued.

Question 5

Declassification of a firm's board tends to increase the market value of the firm's stock.

Accepted Answer

A) True 
 B)False

Question 6

If the Beta Co.issues $100 million worth of preferred stock,what will happen to its net worth if book value of common equity is $500 million?

Accepted Answer

A)  It will increase by $400 million. 
B)  It will decrease by $100 million. 
C)  It will increase to $600 million. 
D)  It will decrease to $400 million. 
A)  It will increase by $400 million. 
B)  It will decrease by $100 million. 
C)  It will increase to $600 million. 
D)  It will decrease to $400 million.

Question 7

Which one of the following equity concepts would you expect to be least important to a financial analyst?

Accepted Answer

A)  Par value per share 
B)  Additional paid-in capital 
C)  Retained earnings 
D)  Net common equity 
A)  Par value per share 
B)  Additional paid-in capital 
C)  Retained earnings 
D)  Net common equity

Question 8

Which one of the following statements is correct?

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 dividends on the common stock 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 dividends on the common stock can be paid without specific shareholder approval.

Question 9

If you are concerned with maintaining the market value of your preferred stock,you should purchase floating-rate preferred shares.

Accepted Answer

A) True 
 B)False

Question 10

If an incompetent management team controls a large block of votes,it may use these votes to stay in control.

Accepted Answer

A) True 
 B)False

Question 11

Which one of the following statements is true with respect to financial and product markets?

Accepted Answer

A)  In product markets, companies rarely find investments that yield a positive NPV. 
B)  Financial markets face fast-moving competition. 
C)  Competition in financial markets is not as thorough as in product markets. 
D)  Competition in product markets is more intense than in financial markets. 
A)  In product markets, companies rarely find investments that yield a positive NPV. 
B)  Financial markets face fast-moving competition. 
C)  Competition in financial markets is not as thorough as in product markets. 
D)  Competition in product markets is more intense than in financial markets.

Question 12

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

Accepted Answer

A)  Interest and principal payments are tax deductible. 
B)  Interest payments are tax deductible. 
C)  Principal payments are tax deductible. 
D)  Seventy percent of interest payments are tax deductible. 
A)  Interest and principal payments are tax deductible. 
B)  Interest payments are tax deductible. 
C)  Principal payments are tax deductible. 
D)  Seventy percent of interest payments are tax deductible.

Question 13

What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $80 per share?

Accepted Answer

A)  The bondholder will lose $100. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D)  The bondholder will choose to convert. 
A)  The bondholder will lose $100. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D)  The bondholder will choose to convert.

Question 14

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 15

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

Accepted Answer

A)  $17,500 
B)  $32,500 
C)  $50,000 
D)  $76,923 
A)  $17,500 
B)  $32,500 
C)  $50,000 
D)  $76,923

Question 16

One way that investors contribute capital to the firm is by:

Accepted Answer

A)  the company plowing back part of its earnings. 
B)  paying less than par value for the stock. 
C)  letting their warrants expire unexercised. 
D)  increasing the amount of treasury stock. 
A)  the company plowing back part of its earnings. 
B)  paying less than par value for the stock. 
C)  letting their warrants expire unexercised. 
D)  increasing the amount of treasury stock.

Question 17

Jay's Jams Inc.was just established with an investment of $3 million.Jay expects his company to generate free cash flow of $800,000 a year for the next 10 years.If Jay's cost of capital is 15%,find the market value and book value of his company.

Accepted Answer

A)  Market value = $8.0 million; book value = $3.0 million 
B)  Market value = $3.0 million; book value = $4.0 million 
C)  Market value = $4.0 million; book value = $3.0 million 
D)  Market value = $8.0 million; book value = $4.0 million 
A)  Market value = $8.0 million; book value = $3.0 million 
B)  Market value = $3.0 million; book value = $4.0 million 
C)  Market value = $4.0 million; book value = $3.0 million 
D)  Market value = $8.0 million; book value = $4.0 million

Question 18

Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

Accepted Answer

A) True 
 B)False

Question 19

What is the book value per share of equity for a firm with $1 million in net common equity,$50,000 in authorized share capital,25,000 shares issued,and 20,000 shares outstanding?

Accepted Answer

A)  $38.00 
B)  $40.00 
C)  $47.50 
D)  $50.00 
A)  $38.00 
B)  $40.00 
C)  $47.50 
D)  $50.00

Question 20

Assume a firm with 5,000 shares outstanding earns $10 per share and has a 30% plowback ratio.In this case retained earnings will:

Accepted Answer

A)  increase by $15,000. 
B)  increase by $50,000. 
C)  decrease by $15,000. 
D)  decrease by $50,000. 
A)  increase by $15,000. 
B)  increase by $50,000. 
C)  decrease by $15,000. 
D)  decrease by $50,000.

Exam 14: Introduction to Corporate Financing and Governance

The system of electing a board of directors where each director is voted on separately is known as:

Warrants:

Callable bonds may be repurchased by the issuing firm before maturity at the specified call price.

A stock's par value is the:

Declassification of a firm's board tends to increase the market value of the firm's stock.

If the Beta Co.issues $100 million worth of preferred stock,what will happen to its net worth if book value of common equity is $500 million?

Which one of the following equity concepts would you expect to be least important to a financial analyst?

Which one of the following statements is correct?

If you are concerned with maintaining the market value of your preferred stock,you should purchase floating-rate preferred shares.

If an incompetent management team controls a large block of votes,it may use these votes to stay in control.

Which one of the following statements is true with respect to financial and product markets?

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $80 per share?

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

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

One way that investors contribute capital to the firm is by:

Jay's Jams Inc.was just established with an investment of $3 million.Jay expects his company to generate free cash flow of $800,000 a year for the next 10 years.If Jay's cost of capital is 15%,find the market value and book value of his company.

Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

What is the book value per share of equity for a firm with $1 million in net common equity,$50,000 in authorized share capital,25,000 shares issued,and 20,000 shares outstanding?

Assume a firm with 5,000 shares outstanding earns $10 per share and has a 30% plowback ratio.In this case retained earnings will:

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