Question 1

An independent outside director:

Accepted Answer

A)  is defined as a company employee who has no management responsibilities outside of the board. 
B)  cannot serve as the board chairman. 
C)  is prohibited from owning shares of the firm. 
D)  can be a shareholder as long as he/she holds no management position in the firm outside of the board. 
A)  is defined as a company employee who has no management responsibilities outside of the board. 
B)  cannot serve as the board chairman. 
C)  is prohibited from owning shares of the firm. 
D)  can be a shareholder as long as he/she holds no management position in the firm outside of the board.

Question 2

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 3

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

Accepted Answer

A) True 
 B)False

Question 4

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 5

A majority of a firm's directors must be independent of the firm's management.

Accepted Answer

A) True 
 B)False

Question 6

When firms retain cash,they are generating funds internally thereby decreasing the amount of external funds needed.

Accepted Answer

A) True 
 B)False

Question 7

For most firms,the majority of their funding is from external sources.

Accepted Answer

A) True 
 B)False

Question 8

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting.How many votes will the shareholder cast for Director "A" if four directors are to be elected and the maximum number of votes are cast for "A"?

Accepted Answer

A)  25 
B)  100 
C)  200 
D)  400 
A)  25 
B)  100 
C)  200 
D)  400

Question 9

If net equity issues have been negative,

Accepted Answer

A)  more shares have been repurchased than newly issued. 
B)  new shares have been sold at less than par value. 
C)  issuing stock has been a negative NPV transaction. 
D)  dividend payments have exceeded net income. 
A)  more shares have been repurchased than newly issued. 
B)  new shares have been sold at less than par value. 
C)  issuing stock has been a negative NPV transaction. 
D)  dividend payments have exceeded net income.

Question 10

Which one of these accounts represents internal funding?

Accepted Answer

A)  Retained earnings 
B)  Common stock 
C)  Bonds payable 
D)  Preferred stock 
A)  Retained earnings 
B)  Common stock 
C)  Bonds payable 
D)  Preferred stock

Question 11

Which one of the following statements about floating-rate preferred stock is correct?

Accepted Answer

A)  Its dividends increase as interest rates increase. 
B)  Its market price increases at a set rate annually. 
C)  It is the only stock issued without a par value. 
D)  Its dividends are deductible for tax purposes by the paying corporation. 
A)  Its dividends increase as interest rates increase. 
B)  Its market price increases at a set rate annually. 
C)  It is the only stock issued without a par value. 
D)  Its dividends are deductible for tax purposes by the paying corporation.

Question 12

The majority of an established firm's capital is generated:

Accepted Answer

A)  internally. 
B)  externally. 
C)  through issuance of new shares. 
D)  through funded debt. 
A)  internally. 
B)  externally. 
C)  through issuance of new shares. 
D)  through funded debt.

Question 13

Which one of these terms applies to the bundling of a group of loans with the subsequent sale of the cash flows from those loans?

Accepted Answer

A)  Convertible bond 
B)  Warrants 
C)  Asset-backed bond 
D)  Preferred bond 
A)  Convertible bond 
B)  Warrants 
C)  Asset-backed bond 
D)  Preferred bond

Question 14

Assume a corporation has cumulative voting and there are two directors up for election.What is the minimum 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)  0 
B)  20 
C)  40 
D)  100 
A)  0 
B)  20 
C)  40 
D)  100

Question 15

One way in which control of a corporation can be removed from the current board of directors is to:

Accepted Answer

A)  take away the directors' stock. 
B)  give voting power to management. 
C)  remove the Board's voting power. 
D)  fight a proxy contest. 
A)  take away the directors' stock. 
B)  give voting power to management. 
C)  remove the Board's voting power. 
D)  fight a proxy contest.

Question 16

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share.Which one of these correctly states the resulting change in the equity accounts?

Accepted Answer

A)  Capital surplus will increase by $180,000. 
B)  Retained earnings will decrease by $210,000. 
C)  Common stock will increase by $15,000. 
D)  Common stock will increase by $210,000. 
A)  Capital surplus will increase by $180,000. 
B)  Retained earnings will decrease by $210,000. 
C)  Common stock will increase by $15,000. 
D)  Common stock will increase by $210,000.

Question 17

Floating-rate bonds appeal to investors who are worried about fluctuations in interest rates.

Accepted Answer

A) True 
 B)False

Question 18

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 $45 per share?

Accepted Answer

A)  The bondholders will choose to convert. 
B)  The stock will go up to $50 per share. 
C)  The bond's price will go down to $900. 
D)  Bondholders will not convert. 
A)  The bondholders will choose to convert. 
B)  The stock will go up to $50 per share. 
C)  The bond's price will go down to $900. 
D)  Bondholders will not convert.

Question 19

An investor might prefer floating-rate debt if she thought that:

Accepted Answer

A)  interest rates would rise. 
B)  interest rates would decline. 
C)  its bond rating might be lowered. 
D)  its bonds were going to be converted into equity. 
A)  interest rates would rise. 
B)  interest rates would decline. 
C)  its bond rating might be lowered. 
D)  its bonds were going to be converted into equity.

Question 20

All of the following are true of retained earnings except:

Accepted Answer

A)  They are the difference between paid-in capital and the total dividends paid. 
B)  They represent the amount of new capital shareholders have indirectly contributed. 
C)  They are equal to the cumulative earnings less dividends. 
D)  They are the amount of earnings plowed back into the firm. 
A)  They are the difference between paid-in capital and the total dividends paid. 
B)  They represent the amount of new capital shareholders have indirectly contributed. 
C)  They are equal to the cumulative earnings less dividends. 
D)  They are the amount of earnings plowed back into the firm.

Exam 14: Introduction to Corporate Financing and Governance

An independent outside director:

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

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

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?

A majority of a firm's directors must be independent of the firm's management.

When firms retain cash,they are generating funds internally thereby decreasing the amount of external funds needed.

For most firms,the majority of their funding is from external sources.

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting.How many votes will the shareholder cast for Director "A" if four directors are to be elected and the maximum number of votes are cast for "A"?

If net equity issues have been negative,

Which one of these accounts represents internal funding?

Which one of the following statements about floating-rate preferred stock is correct?

The majority of an established firm's capital is generated:

Which one of these terms applies to the bundling of a group of loans with the subsequent sale of the cash flows from those loans?

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

One way in which control of a corporation can be removed from the current board of directors is to:

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share.Which one of these correctly states the resulting change in the equity accounts?

Floating-rate bonds appeal to investors who are worried about fluctuations in interest rates.

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 $45 per share?

An investor might prefer floating-rate debt if she thought that:

All of the following are true of retained earnings except:

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