Question 1

Since 1975 U.S.nonfinancial corporations have tended to have debt-equity ratios that are:

Accepted Answer

A) steadily rising due to the low interest rate environment. 
B) less than 1.0. 
C) averaging in the .8 to .9 range. 
D) relatively stable over time. 
E) relatively unaffected by stock market movements. 
A) steadily rising due to the low interest rate environment. 
B) less than 1.0. 
C) averaging in the .8 to .9 range. 
D) relatively stable over time. 
E) relatively unaffected by stock market movements.

Question 2

A revolving bank line of credit:

Accepted Answer

A) generally requires the borrower to borrow the entire credit line amount at some point in time. 
B) generally involves a fee charged to the borrower on the unused portion of the revolver. 
C) may only be offered for periods of one year or less. 
D) is generally free of charge until money is actually borrowed. 
E) allows the borrower to determine the amount of credit to be granted. 
A) generally requires the borrower to borrow the entire credit line amount at some point in time. 
B) generally involves a fee charged to the borrower on the unused portion of the revolver. 
C) may only be offered for periods of one year or less. 
D) is generally free of charge until money is actually borrowed. 
E) allows the borrower to determine the amount of credit to be granted.

Question 3

There are three seats on the board of directors of MMT,Inc.,up for election.The firm has 175,000 shares of stock outstanding and uses cumulative voting.Each share is granted one vote per open seat.You currently own 10,000 shares that have a market value of $23 each.How much must you spend,if anything,to acquire sufficient shares to guarantee your election to the board? Assume no one else votes for you.

Accepted Answer

A) $1,111,690 
B) $776,273 
C) $830,814 
D) $1,006,273 
E) $688,230 
A) $1,111,690 
B) $776,273 
C) $830,814 
D) $1,006,273 
E) $688,230

Question 4

Not paying dividends on a cumulative preferred issue may result in:

Accepted Answer

A) preferred dividend arrearages that can be eliminated only after all common dividends are paid. 
B) increased taxes based on the amount of the dividend arrearage. 
C) the permanent forfeiture of all unpaid past dividends but the resumption of future dividends. 
D) the issuer being forced into repaying all preferred shareholders the stated value of their shares. 
E) voting rights being granted to preferred shareholders. 
A) preferred dividend arrearages that can be eliminated only after all common dividends are paid. 
B) increased taxes based on the amount of the dividend arrearage. 
C) the permanent forfeiture of all unpaid past dividends but the resumption of future dividends. 
D) the issuer being forced into repaying all preferred shareholders the stated value of their shares. 
E) voting rights being granted to preferred shareholders.

Question 5

If a group other than current management solicits the authority to vote shares as part of their effort to replace the current management team,a ________ is said to occur.

Accepted Answer

A) proxy fight 
B) stockholder derivative action 
C) tender offer 
D) vote of confidence 
E) seniority turnover 
A) proxy fight 
B) stockholder derivative action 
C) tender offer 
D) vote of confidence 
E) seniority turnover

Question 6

There are three directors' seats up for election.If you own 1,000 shares of stock and you can cast 1,000 votes in each of the three elections,then the firm uses the voting procedure referred to as:

Accepted Answer

A) cumulative voting. 
B) absolute priority voting. 
C) sequential voting. 
D) straight voting. 
E) market share voting. 
A) cumulative voting. 
B) absolute priority voting. 
C) sequential voting. 
D) straight voting. 
E) market share voting.

Question 7

Identify the general rights that are commonly granted to common stock shareholders.

Accepted Answer

Common stock shareholders generally have

Question 8

There are seven seats on the board of directors of Furniture Unlimited up for election.The firm has 246,500 shares of stock outstanding and uses straight voting.Each share is granted one vote for each open seat.How many shares must you control if you want to guarantee your election to the board assuming no one else votes for you?

Accepted Answer

A) 123,250 
B) 123,251 
C) 30,814 
D) 35,215 
E) 30,813 
A) 123,250 
B) 123,251 
C) 30,814 
D) 35,215 
E) 30,813

Question 9

If a debt is subordinated,it:

Accepted Answer

A) has a higher priority status than secured creditors. 
B) is secondary to equity. 
C) must give preference to the secured creditors in the event of default. 
D) has been issued because the company is in default. 
E) is treated as an equity security. 
A) has a higher priority status than secured creditors. 
B) is secondary to equity. 
C) must give preference to the secured creditors in the event of default. 
D) has been issued because the company is in default. 
E) is treated as an equity security.

Question 10

Which one of these is not included in the indenture?

Accepted Answer

A) Bond seniority 
B) Registered owner 
C) Protective covenant 
D) Call provision 
E) Repayment arrangements 
A) Bond seniority 
B) Registered owner 
C) Protective covenant 
D) Call provision 
E) Repayment arrangements

Question 11

A grant of authority allowing someone else to vote shares of stock that you own is called a:

Accepted Answer

A) power-of-share authorization. 
B) proxy. 
C) share authority grant (SAG). 
D) restricted conveyance. 
E) general right of execution. 
A) power-of-share authorization. 
B) proxy. 
C) share authority grant (SAG). 
D) restricted conveyance. 
E) general right of execution.

Question 12

Different classes of stock usually are issued to:

Accepted Answer

A) allow a certain group to maintain ownership control while reducing that group's equity position. 
B) reduce the firm's dividend obligation. 
C) fool investors. 
D) extract perquisites from one class of shareholders without the other class of shareholders knowing. 
E) distinguish the time periods in which the various shares were issued. 
A) allow a certain group to maintain ownership control while reducing that group's equity position. 
B) reduce the firm's dividend obligation. 
C) fool investors. 
D) extract perquisites from one class of shareholders without the other class of shareholders knowing. 
E) distinguish the time periods in which the various shares were issued.

Question 13

ABC owns 15 percent of XYZ Corporation.What tax benefit does ABC derive from this situation?

Accepted Answer

A) ABC receives no tax benefit but XYZ is only taxed on 30 percent of its net income. 
B) ABC benefits because it is able to treat any XYZ dividends it receives as interest income. 
C) Fifty percent of the dividends paid by XYZ to ABC is exempt from income taxes. 
D) ABC can exclude 30 percent of any XYZ dividends received from its taxable income. 
E) All dividend income ABC receives from XYZ is tax-exempt. 
A) ABC receives no tax benefit but XYZ is only taxed on 30 percent of its net income. 
B) ABC benefits because it is able to treat any XYZ dividends it receives as interest income. 
C) Fifty percent of the dividends paid by XYZ to ABC is exempt from income taxes. 
D) ABC can exclude 30 percent of any XYZ dividends received from its taxable income. 
E) All dividend income ABC receives from XYZ is tax-exempt.

Question 14

Sinking fund arrangements are least apt to contain which one of these requirements?

Accepted Answer

A) A deferred provision for the first few years 
B) A one-time repayment of the entire principal and interest at maturity 
C) A balloon payment 
D) Equal payments of principal over the life of the bond 
E) Sufficient payments over the bonds' life to retire the entire bond issue 
A) A deferred provision for the first few years 
B) A one-time repayment of the entire principal and interest at maturity 
C) A balloon payment 
D) Equal payments of principal over the life of the bond 
E) Sufficient payments over the bonds' life to retire the entire bond issue

Question 15

The written agreement between a corporation and its bondholders is called the:

Accepted Answer

A) collateral agreement. 
B) note. 
C) indenture. 
D) conveyance. 
E) legal understanding. 
A) collateral agreement. 
B) note. 
C) indenture. 
D) conveyance. 
E) legal understanding.

Question 16

Which one of these statements correctly applies to either a leveraged or an unleveraged syndicated loan?

Accepted Answer

A) The loan will always be rated as investment grade. 
B) The loan may not be publicly traded. 
C) The loan arranger is not involved with the actual lending. 
D) Each bank that participates negotiates the terms for its portion of the overall loan. 
E) Each bank has its own loan agreement with the borrowers. 
A) The loan will always be rated as investment grade. 
B) The loan may not be publicly traded. 
C) The loan arranger is not involved with the actual lending. 
D) Each bank that participates negotiates the terms for its portion of the overall loan. 
E) Each bank has its own loan agreement with the borrowers.

Question 17

If a bond issue is callable,the call price generally is:

Accepted Answer

A) less than par value. 
B) variable based on the market rate of interest. 
C) equal to par value. 
D) constant over the life of the debt. 
E) set so it decreases as the bond approaches maturity. 
A) less than par value. 
B) variable based on the market rate of interest. 
C) equal to par value. 
D) constant over the life of the debt. 
E) set so it decreases as the bond approaches maturity.

Question 18

Ideally,corporations try to create securities that have the tax benefits:

Accepted Answer

A) of equity but the bankruptcy benefits of debt. 
B) and bankruptcy benefits of debt. 
C) and bankruptcy benefits of equity. 
D) of debt and the equity benefits of dividends. 
E) of debt but the bankruptcy benefits of equity. 
A) of equity but the bankruptcy benefits of debt. 
B) and bankruptcy benefits of debt. 
C) and bankruptcy benefits of equity. 
D) of debt and the equity benefits of dividends. 
E) of debt but the bankruptcy benefits of equity.

Question 19

If an issuer retires a debt issue before maturity,the specific amount paid to do so is called the:

Accepted Answer

A) amortized payoff. 
B) call price. 
C) sinking fund amount. 
D) the discount. 
E) par or face amount. 
A) amortized payoff. 
B) call price. 
C) sinking fund amount. 
D) the discount. 
E) par or face amount.

Question 20

Recently,U.S.nonfinancial corporations have been:

Accepted Answer

A) net repurchasers of stock. 
B) issuing new shares of stock in record numbers. 
C) primarily relying on external debt. 
D) paying off external debt at a record pace. 
E) net issuers of stock. 
A) net repurchasers of stock. 
B) issuing new shares of stock in record numbers. 
C) primarily relying on external debt. 
D) paying off external debt at a record pace. 
E) net issuers of stock.

Exam 15: Long-Term Financing

Since 1975 U.S.nonfinancial corporations have tended to have debt-equity ratios that are:

A revolving bank line of credit:

Not paying dividends on a cumulative preferred issue may result in:

If a group other than current management solicits the authority to vote shares as part of their effort to replace the current management team,a ________ is said to occur.

There are three directors' seats up for election.If you own 1,000 shares of stock and you can cast 1,000 votes in each of the three elections,then the firm uses the voting procedure referred to as:

Identify the general rights that are commonly granted to common stock shareholders.

If a debt is subordinated,it:

Which one of these is not included in the indenture?

A grant of authority allowing someone else to vote shares of stock that you own is called a:

Different classes of stock usually are issued to:

ABC owns 15 percent of XYZ Corporation.What tax benefit does ABC derive from this situation?

Sinking fund arrangements are least apt to contain which one of these requirements?

The written agreement between a corporation and its bondholders is called the:

Which one of these statements correctly applies to either a leveraged or an unleveraged syndicated loan?

If a bond issue is callable,the call price generally is:

Ideally,corporations try to create securities that have the tax benefits:

If an issuer retires a debt issue before maturity,the specific amount paid to do so is called the:

Recently,U.S.nonfinancial corporations have been:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

Filters