Question 1

Which statement about retained profits and dividends is true?

Accepted Answer

A) Dividends and retained profits are two sides of the same coin. 
B) In Australia, industrial companies, on average, pay out about 30% of their earnings as dividends. 
C) On average, dividends are a relatively small component of return on shares compared to capital gains. 
D) All of the statements are true. 
A) Dividends and retained profits are two sides of the same coin. 
B) In Australia, industrial companies, on average, pay out about 30% of their earnings as dividends. 
C) On average, dividends are a relatively small component of return on shares compared to capital gains. 
D) All of the statements are true.

Question 2

Purple Ltd has 10 million ordinary shares which were issued at 80 cents each. The shares are currently valued on the stock exchange at $1.60 per share. The directors of Purple Ltd have decided to make a one-for-eight rights issue at $1.50 per share.
REQUIRED:
a)Calculate the price of a share following the rights issue.
b)Calculate the value of the rights offer on a per share basis.

Accepted Answer

@#IMG-DLM& b)As the price of each share, in theory

Question 3

The most important difference between a bonus share issue and a rights issue, from the issuing company's point of view, is that they:

Accepted Answer

A) require different accounting practices. 
B) benefit different groups. 
C) have different effects on cash flow. 
D) none of the above. 
A) require different accounting practices. 
B) benefit different groups. 
C) have different effects on cash flow. 
D) none of the above.

Question 4

A firm with low business risk could safely consider finance using:

Accepted Answer

A) high debt. 
B) little debt. 
C) no debt. 
D) none of the above. 
A) high debt. 
B) little debt. 
C) no debt. 
D) none of the above.

Question 5

Which statement regarding preference shares is correct?

Accepted Answer

A) Preference shares typically carry voting rights. 
B) Preference shares continue to be a major source of new finance for companies. 
C) Preference shareholders do not have the right to receive dividends prior to dividends being paid to ordinary shareholders. 
D) Dividends paid on preference shares are not normally tax deductible to the business. 
A) Preference shares typically carry voting rights. 
B) Preference shares continue to be a major source of new finance for companies. 
C) Preference shareholders do not have the right to receive dividends prior to dividends being paid to ordinary shareholders. 
D) Dividends paid on preference shares are not normally tax deductible to the business.

Question 6

The use of debt finance can lead a business to have ________ returns and ________ risk.

Accepted Answer

A) higher; higher 
B) lower; lower 
C) higher; lower 
D) none of the above 
A) higher; higher 
B) lower; lower 
C) higher; lower 
D) none of the above

Question 7

Discuss the advantages and disadvantages of a company issuing long-term debt, e.g., debentures, compared to raising funds through an issue of shares.

Accepted Answer

The possible advantages of issuing long-

Question 8

A type of short-term financing used by many firms is:

Accepted Answer

A) bank overdraft. 
B) accounts receivable. 
C) unsecured notes. 
D) leasing. 
A) bank overdraft. 
B) accounts receivable. 
C) unsecured notes. 
D) leasing.

Question 9

If a shareholder in a public company purchases shares on the Australian Securities Exchange, the capital of the company will:

Accepted Answer

A) decrease by the amount obtained for the shares. 
B) remain the same. 
C) decrease by the fair value of the share. 
D) increase by the amount obtained for the shares. 
A) decrease by the amount obtained for the shares. 
B) remain the same. 
C) decrease by the fair value of the share. 
D) increase by the amount obtained for the shares.

Question 10

Which of these is an advantage of bank overdrafts as a form of finance?

Accepted Answer

A) They are legally payable on demand. 
B) They are easy to arrange. 
C) They are a flexible form of borrowing. 
D) Both B and C. 
A) They are legally payable on demand. 
B) They are easy to arrange. 
C) They are a flexible form of borrowing. 
D) Both B and C.

Question 11

For an investor investing in ordinary shares, it is normally considered riskier than investing in:

Accepted Answer

A) debentures. 
B) unsecured notes. 
C) preference shares. 
D) all of the above. 
A) debentures. 
B) unsecured notes. 
C) preference shares. 
D) all of the above.

Question 12

The use of debt finance by a company (gearing)has a potential impact on which of the following?

Accepted Answer

A) The return obtained by the shareholder. 
B) The variability of net profit. 
C) Risk associated with the company. 
D) All of the above. 
A) The return obtained by the shareholder. 
B) The variability of net profit. 
C) Risk associated with the company. 
D) All of the above.

Question 13

Ordinary shareholders:

Accepted Answer

A) have the right to receive arrears of dividends. 
B) are the owners of the firm. 
C) are entitled to discounts on the company's products. 
D) All of the above are true. 
A) have the right to receive arrears of dividends. 
B) are the owners of the firm. 
C) are entitled to discounts on the company's products. 
D) All of the above are true.

Question 14

Which of the following is an advantage of lease financing?

Accepted Answer

A) Flexibility. 
B) Reasonable cost. 
C) Saving in cash flow. 
D) All of the above. 
A) Flexibility. 
B) Reasonable cost. 
C) Saving in cash flow. 
D) All of the above.

Question 15

Which of the following statements is false with respect to debt factoring?

Accepted Answer

A) it can be seen as an indication that the business is in healthy financial shape. 
B) it outsources control of accounts receivable to specialists in collection and credit. 
C) it provides a quicker source of cash than waiting for customers to pay. 
D) all of the above. 
A) it can be seen as an indication that the business is in healthy financial shape. 
B) it outsources control of accounts receivable to specialists in collection and credit. 
C) it provides a quicker source of cash than waiting for customers to pay. 
D) all of the above.

Question 16

Which of the following businesses would probably not be of interest to providers of venture capital?

Accepted Answer

A) Mature businesses that are not expanding rapidly. 
B) Businesses promising low returns but which are low-risk. 
C) Businesses which are suffering declining sales. 
D) All of the above. 
A) Mature businesses that are not expanding rapidly. 
B) Businesses promising low returns but which are low-risk. 
C) Businesses which are suffering declining sales. 
D) All of the above.

Question 17

Which of these is correct concerning the difference between an operating and a finance lease?

Accepted Answer

A) Under a finance lease, the customer takes immediate possession of the asset, while under an operating lease, the customer must wait for possession until the full cost is paid. 
B) Under an operating lease, the lessee carries the risks and rewards, whereas with a finance lease, these are transferred to the lessor. 
C) A finance lease is a long-term lending arrangement, while an operating lease is a short-term arrangement. 
D) The asset will be carried and depreciated on the books of the lessee in an operating lease, and on the books of the lessor in a finance lease. 
A) Under a finance lease, the customer takes immediate possession of the asset, while under an operating lease, the customer must wait for possession until the full cost is paid. 
B) Under an operating lease, the lessee carries the risks and rewards, whereas with a finance lease, these are transferred to the lessor. 
C) A finance lease is a long-term lending arrangement, while an operating lease is a short-term arrangement. 
D) The asset will be carried and depreciated on the books of the lessee in an operating lease, and on the books of the lessor in a finance lease.

Question 18

The current market price of a company's shares is $10. The company is planning to make a 1 for 10 rights issue at a subscription price of $8. You hold 100 shares at the time the rights issue is to be made. What will the ex-rights share price be?

Accepted Answer

A) $9.46. 
B) $8.00. 
C) $9.82. 
D) $8.80. 
A) $9.46. 
B) $8.00. 
C) $9.82. 
D) $8.80.

Question 19

The form of short-term finance where another entity takes over the firm's debtors' accounts for a payment of around 85% of the accounts balance is known as:

Accepted Answer

A) bills receivable. 
B) discounting. 
C) debt factoring. 
D) none of the above. 
A) bills receivable. 
B) discounting. 
C) debt factoring. 
D) none of the above.

Question 20

Small businesses are more likely to obtain long-term finance from:

Accepted Answer

A) private equity. 
B) ASX listing. 
C) debentures. 
D) none of the above. 
A) private equity. 
B) ASX listing. 
C) debentures. 
D) none of the above.

Which statement about retained profits and dividends is true?

The most important difference between a bonus share issue and a rights issue, from the issuing company's point of view, is that they:

A firm with low business risk could safely consider finance using:

Which statement regarding preference shares is correct?

The use of debt finance can lead a business to have returns and risk.

Discuss the advantages and disadvantages of a company issuing long-term debt, e.g., debentures, compared to raising funds through an issue of shares.

A type of short-term financing used by many firms is:

If a shareholder in a public company purchases shares on the Australian Securities Exchange, the capital of the company will:

Which of these is an advantage of bank overdrafts as a form of finance?

For an investor investing in ordinary shares, it is normally considered riskier than investing in:

The use of debt finance by a company (gearing)has a potential impact on which of the following?

Ordinary shareholders:

Which of the following is an advantage of lease financing?

Which of the following statements is false with respect to debt factoring?

Which of the following businesses would probably not be of interest to providers of venture capital?

Which of these is correct concerning the difference between an operating and a finance lease?

The current market price of a company's shares is $10. The company is planning to make a 1 for 10 rights issue at a subscription price of $8. You hold 100 shares at the time the rights issue is to be made. What will the ex-rights share price be?

The form of short-term finance where another entity takes over the firm's debtors' accounts for a payment of around 85% of the accounts balance is known as:

Small businesses are more likely to obtain long-term finance from:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Filters

Exam 14: Financing the Business

Which statement about retained profits and dividends is true?

The most important difference between a bonus share issue and a rights issue, from the issuing company's point of view, is that they:

A firm with low business risk could safely consider finance using:

Which statement regarding preference shares is correct?

The use of debt finance can lead a business to have ________ returns and ________ risk.

Discuss the advantages and disadvantages of a company issuing long-term debt, e.g., debentures, compared to raising funds through an issue of shares.

A type of short-term financing used by many firms is:

If a shareholder in a public company purchases shares on the Australian Securities Exchange, the capital of the company will:

Which of these is an advantage of bank overdrafts as a form of finance?

For an investor investing in ordinary shares, it is normally considered riskier than investing in:

The use of debt finance by a company (gearing)has a potential impact on which of the following?

Ordinary shareholders:

Which of the following is an advantage of lease financing?

Which of the following statements is false with respect to debt factoring?

Which of the following businesses would probably not be of interest to providers of venture capital?

Which of these is correct concerning the difference between an operating and a finance lease?

The current market price of a company's shares is $10. The company is planning to make a 1 for 10 rights issue at a subscription price of $8. You hold 100 shares at the time the rights issue is to be made. What will the ex-rights share price be?

The form of short-term finance where another entity takes over the firm's debtors' accounts for a payment of around 85% of the accounts balance is known as:

Small businesses are more likely to obtain long-term finance from:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Filters

The use of debt finance can lead a business to have returns and risk.