Question 1

A company's board of directors is primarily an agent of the company's:

Accepted Answer

A)  management. 
B)  employees. 
C)  shareholders. 
D)  management and employees. 
A)  management. 
B)  employees. 
C)  shareholders. 
D)  management and employees.

Question 2

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 3

Corporations that annually retire a set portion of their long-term debt are said to be using:

Accepted Answer

A)  indexed bonds. 
B)  sinking funds. 
C)  convertible debt. 
D)  secured debt. 
A)  indexed bonds. 
B)  sinking funds. 
C)  convertible debt. 
D)  secured debt.

Question 4

A warrant has an exercise price of $40,and the current stock price is $38.An investor holding this option will purchase the stock only if the:

Accepted Answer

A)  dividend yield on the stock exceeds 10%. 
B)  stock price falls below $38. 
C)  stock price rises above $40. 
D)  stock price falls to $20 or below. 
A)  dividend yield on the stock exceeds 10%. 
B)  stock price falls below $38. 
C)  stock price rises above $40. 
D)  stock price falls to $20 or below.

Question 5

Corporations generally need shareholder approval to do which one of the following?

Accepted Answer

A)  Select a new CEO 
B)  Increase the number of authorized shares 
C)  Purchase Treasury stock 
D)  Pay a regular dividend 
A)  Select a new CEO 
B)  Increase the number of authorized shares 
C)  Purchase Treasury stock 
D)  Pay a regular dividend

Question 6

If a corporation has more shares issued than outstanding,then:

Accepted Answer

A)  the Board of Directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D)  unexercised stock warrants exist. 
A)  the Board of Directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D)  unexercised stock warrants exist.

Question 7

Which statement correctly describes the company's dividend decision?

Accepted Answer

A)  The dividend payment is set by shareholders at the annual general meeting. 
B)  The dividend payment is the sole responsibility of the company's management. 
C)  The dividend payment must be approved by the board of directors. 
D)  The dividend payment is set by the company's bondholders together with the shareholders. 
A)  The dividend payment is set by shareholders at the annual general meeting. 
B)  The dividend payment is the sole responsibility of the company's management. 
C)  The dividend payment must be approved by the board of directors. 
D)  The dividend payment is set by the company's bondholders together with the shareholders.

Question 8

A proxy contest is typically one in which:

Accepted Answer

A)  the Board attempts to gain control from the shareholders. 
B)  management attempts to gain control from the Directors. 
C)  outsiders attempt to gain control from management. 
D)  the Board attempts to gain control from the Directors. 
A)  the Board attempts to gain control from the shareholders. 
B)  management attempts to gain control from the Directors. 
C)  outsiders attempt to gain control from management. 
D)  the Board attempts to gain control from the Directors.

Question 9

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 10

All of the following are types of innovative bonds except:

Accepted Answer

A)  preferred stock. 
B)  asset-backed bonds. 
C)  collateralized debt obligations (CDOs). 
D)  mortality bonds. 
A)  preferred stock. 
B)  asset-backed bonds. 
C)  collateralized debt obligations (CDOs). 
D)  mortality bonds.

Question 11

Historically,internally generated cash covers less than half of the non-financial firms' capital requirements in the U.S.

Accepted Answer

A) True 
 B)False

Question 12

A company is about to issue 1,000 new shares of stock at a market price of $33 per share.If the par value per share is $4,the increase in capital surplus from this stock issue will be:

Accepted Answer

A)  $33,000. 
B)  $4,000. 
C)  $29,000. 
D)  $32,000. 
A)  $33,000. 
B)  $4,000. 
C)  $29,000. 
D)  $32,000.

Question 13

Privately placed debt must be held until maturity and can never be resold.

Accepted Answer

A) True 
 B)False

Question 14

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 15

A warrant grants its holder the right to do which one of these prior to a specified date?

Accepted Answer

A)  Convert debt into a specified number of shares 
B)  Sell common shares at a predetermined price 
C)  Exchange stock for bonds at a specified price 
D)  Purchase shares at a predetermined price 
A)  Convert debt into a specified number of shares 
B)  Sell common shares at a predetermined price 
C)  Exchange stock for bonds at a specified price 
D)  Purchase shares at a predetermined price

Question 16

The purpose of a sinking fund is to:

Accepted Answer

A)  reduce the par value of stock over time. 
B)  take advantage of the tax break on preferred stock. 
C)  periodically retire debt prior to final maturity. 
D)  allow risky corporations to avoid bankruptcy. 
A)  reduce the par value of stock over time. 
B)  take advantage of the tax break on preferred stock. 
C)  periodically retire debt prior to final maturity. 
D)  allow risky corporations to avoid bankruptcy.

Question 17

One common reason for issuing two distinct classes of common stock is to:

Accepted Answer

A)  sell different classes to increase profits. 
B)  allow one stock to increase in price while the other class declines. 
C)  restrict voting privileges from some shareholders. 
D)  conserve cash by offering dividends to only one class of stockholders. 
A)  sell different classes to increase profits. 
B)  allow one stock to increase in price while the other class declines. 
C)  restrict voting privileges from some shareholders. 
D)  conserve cash by offering dividends to only one class of stockholders.

Question 18

A corporation's net worth is composed of the:

Accepted Answer

A)  book value of common equity plus par value of debt. 
B)  par value plus additional paid-in capital. 
C)  retained earnings less treasury stock. 
D)  book value of common equity plus preferred stock. 
A)  book value of common equity plus par value of debt. 
B)  par value plus additional paid-in capital. 
C)  retained earnings less treasury stock. 
D)  book value of common equity plus preferred stock.

Question 19

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

Accepted Answer

A) True 
 B)False

Question 20

The term "senior debt" refers only to debt that was issued in the more distant past.

Accepted Answer

A) True 
 B)False

Exam 14: Introduction to Corporate Financing and Governance

A company's board of directors is primarily an agent of the company's:

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

Corporations that annually retire a set portion of their long-term debt are said to be using:

A warrant has an exercise price of $40,and the current stock price is $38.An investor holding this option will purchase the stock only if the:

Corporations generally need shareholder approval to do which one of the following?

If a corporation has more shares issued than outstanding,then:

Which statement correctly describes the company's dividend decision?

A proxy contest is typically one in which:

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

All of the following are types of innovative bonds except:

Historically,internally generated cash covers less than half of the non-financial firms' capital requirements in the U.S.

A company is about to issue 1,000 new shares of stock at a market price of $33 per share.If the par value per share is $4,the increase in capital surplus from this stock issue will be:

Privately placed debt must be held until maturity and can never be resold.

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

A warrant grants its holder the right to do which one of these prior to a specified date?

The purpose of a sinking fund is to:

One common reason for issuing two distinct classes of common stock is to:

A corporation's net worth is composed of the:

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

The term "senior debt" refers only to debt that was issued in the more distant past.

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