Question 1

Following a one-for-one bonus share issue,the share price of the company should decrease by _________.

Accepted Answer

The answer of Following a one-for-one bonus share issue,the share...

Question 2

The reason for the requirement by the Australian Stock Exchange (ASX)for a minimum of 500 shareholders in a new listed company is:

Accepted Answer

A) to ensure that administration costs per shareholder are kept to a minimum. 
B) to ensure that there will be an active market in the company's shares. 
C) to convince the ASX of the issuing company's credit-worthiness. 
D) to assist in the raising of new capital.

Question 3

Which of the following statements is true?

Accepted Answer

A) Under ASX listing rules,shareholders must approve a proposed employee share plan. 
B) Under ASX listing rules,a company is not allowed to pay dividends from current year profits. 
C) Under ASX listing rules,a company is not permitted to raise capital beyond 15 per cent of issued shares in any six-month period via private placements without shareholders' consent. 
D) None of the given options.

Question 4

Which of the following statements is false?

Accepted Answer

A) A venture capitalist expects to be the managing director of the newly-established company. 
B) Business angels invest in weak businesses. 
C) Venture capitalists require a high rate of return on their investment,whereas business angels do not as their investment is generally small. 
D) All of the given options.

Question 5

If an investor purchases shares cum-rights,it means that:

Accepted Answer

A) the investor will not participate in the rights issue. 
B) the investor will participate in the rights issue. 
C) the investor will participate in the rights issue without having to pay the subscription price. 
D) the investor cannot sell the right separately.

Question 6

Which of the following does not represent an advantage of retained profits as a source of funds?

Accepted Answer

A) Control of the company is not affected. 
B) Capital structure is unaffected. 
C) The company is not committed to paying higher dividends in the future. 
D) No issue costs are involved.

Question 7

A rights issue can be contrasted to a bonus issue in that:

Accepted Answer

A) companies do not issue bonus shares to raise capital. 
B) the right to receive bonus shares can be traded separately from the underlying share. 
C) a bonus issue can dilute share ownership but a rights issue does not. 
D) a rights issue only applies to companies listed on the stock exchange.

Question 8

Business angels only invest in mature companies with a long history of success.

Accepted Answer

A) True 
 B)False

Question 9

Ordinary shares can be best described as:

Accepted Answer

A) securities with an ownership interest in a company with no voting rights. 
B) securities with an ownership interest with voting rights. 
C) having a residual interest in the net assets of the issuing company. 
D) securities with an ownership interest with voting rights which have a residual interest in the net assets of the issuing company.

Question 10

Which of the following is not a major provision of an option agreement?

Accepted Answer

A) The exercise price. 
B) The period during which the option may be exercised. 
C) The rights of the option holder in the event of new issues by the company. 
D) The volatility of the underlying share.

Question 11

A plan in which employees initially purchase an option to buy shares at some future time at a specified price is known as a/an:

Accepted Answer

A) fully paid share plan. 
B) option plan. 
C) replicator plan. 
D) employee share trust.

Question 12

A owns 1000 shares in XYZ Ltd whose current share price (cum rights)is $2 per share.XYZ Ltd makes a one for four rights issue with a subscription price of $1.40 per share.Calculate the value of R,of the right to one new share.

Accepted Answer

A) 8 cents. 
B) 40 cents. 
C) 48 cents. 
D) 84 cents.

Question 13

A bonus issue:

Accepted Answer

A) is made by companies with thinly traded shares. 
B) is a free offer of shares made to potential shareholders. 
C) is the same as a private placement with a zero subscription price. 
D) involves no cash flows and does not dilute the shareholders' wealth.

Question 14

A plan in which payments are made to employees based on the achievement of certain performance criteria is known as a/an:

Accepted Answer

A) replicator plan. 
B) option plan. 
C) fully paid share plan. 
D) employee share trust.

Question 15

The closer the subscription price on a rights issue is set to the market price of the share:

Accepted Answer

A) the greater is the market value of the right. 
B) the smaller is the dilution in investors' wealth. 
C) the more likely that the rights issue will be fully subscribed. 
D) the greater is the need to have the issue underwritten.

Question 16

Dill owns five per cent of the outstanding shares in Pickle Ltd,which has just announced a one for five rights issue with a subscription price of $1.90.The current 'cum rights' price for Pickle shares is $2.20.The number of outstanding shares in Pickle Ltd is 5000.Calculate the value of Dill's investment ex-rights.

Accepted Answer

A) $537.50 
B) $645.00 
C) $550.00 
D) $615.00

Question 17

The voting rights of a company's shareholders must be specified in:

Accepted Answer

A) the AGM. 
B) the constitution. 
C) a deed. 
D) both the constitution and the AGM.

Question 18

Rights issues in Australia are underwritten:

Accepted Answer

A) because shareholders may be unaware of the rights issue because they do not always open their mail. 
B) because the share price may fall after the rights issue is announced,thereby making it less attractive to shareholders. 
C) either because shareholders may be unaware of the rights issue because they do not always open their mail or because the share price may fall after the rights issue is announced,or both,thereby making it less attractive to shareholders. 
D) none of the given options.

Question 19

For legal purposes,preference shares are:

Accepted Answer

A) debt. 
B) equity. 
C) hybrids of debt and equity in some circumstances. 
D) none of the given options.

Question 20

Which of the following statements regarding employee share plans is false?

Accepted Answer

A) The Commonwealth Government provides tax concessions where shares are issued to employees at a discount. 
B) An employee's gains under an employee share plan are taxable if the shares are purchased after 28 March 1995. 
C) Tax concessions are available if an employee purchases a qualifying share. 
D) Fringe benefits tax,capital gains tax and payroll tax are applicable under an employee share plan.

Exam 9: Sources of Finance: Equity