Question 1

American Depositary Receipts (ADRs) are:

Accepted Answer

A)  receipts sent to foreign shareholders who own American companies. 
B)  proof of ownership for Eurodollar deposits held by Americans. 
C)  certificates that have a legal claim on an ownership interest in a foreign company's common stock. 
D)  certificates in U.S. companies that allow foreign investors to buy shares of American companies. 
A)  receipts sent to foreign shareholders who own American companies. 
B)  proof of ownership for Eurodollar deposits held by Americans. 
C)  certificates that have a legal claim on an ownership interest in a foreign company's common stock. 
D)  certificates in U.S. companies that allow foreign investors to buy shares of American companies. C

Question 2

Share classes are similar to bond ratings in that they are used to rank the performance of different corporation's stock.

Accepted Answer

A) True 
 B)False  False

Question 3

Preferred and common stock dividends are a deductible expense for a corporation.

Accepted Answer

A) True 
 B)False  False

Question 4

Preferred stock is the most used of all long-term securities because?

Accepted Answer

A)  Investors can get higher returns after taxes than from other investments. 
B)  Preferred dividends are considered regular (fixed) obligations. 
C)  Flotation costs are extremely low compared to bonds. 
D)  It is not the most used security due to no right to vote. 
A)  Investors can get higher returns after taxes than from other investments. 
B)  Preferred dividends are considered regular (fixed) obligations. 
C)  Flotation costs are extremely low compared to bonds. 
D)  It is not the most used security due to no right to vote.

Question 5

After a rights offering, the common stock will sell at the subscription price.

Accepted Answer

A) True 
 B)False

Question 6

Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.

Accepted Answer

A) True 
 B)False

Question 7

Corporations are able to issue preferred stock at a slightly lower pre-tax yield than debt.

Accepted Answer

A) True 
 B)False

Question 8

Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $6.50 per share and has not been paid for 3 years. If Kuhns retained earnings and after tax income this year total $3 million, what could be the maximum payment to the preferred shareholders on a per share basis?

Accepted Answer

A)  $19.50 per share 
B)  $15.00 per share 
C)  $13.00 per share 
D)  $6.50 per share 
A)  $19.50 per share 
B)  $15.00 per share 
C)  $13.00 per share 
D)  $6.50 per share

Question 9

To the individual recipient, preferred stock dividends offer no advantage over common stock dividends.

Accepted Answer

A) True 
 B)False

Question 10

SED Corporation's shares are currently trading at $52.50. Shareholders have the right to buy 1 share of SED for every 5 rights they own at a price of $48.00. SED's rights trade at $_________?

Accepted Answer

A)  $0.75 
B)  $1.75 
C)  $3.75 
D)  $4.50 
A)  $0.75 
B)  $1.75 
C)  $3.75 
D)  $4.50

Question 11

A rights offering:

Accepted Answer

A)  gives a firm a built-in market for new securities. 
B)  will likely lead to considerably higher distribution costs. 
C)  will increase the shareholder's total valuation. 
D)  is the least expensive way to raise capital. 
A)  gives a firm a built-in market for new securities. 
B)  will likely lead to considerably higher distribution costs. 
C)  will increase the shareholder's total valuation. 
D)  is the least expensive way to raise capital.

Question 12

Because of tax considerations, corporations are able to issue preferred stock at a slightly lower yield than debt.

Accepted Answer

A) True 
 B)False

Question 13

All of the following statements are true except:

Accepted Answer

A)  poison pills discourage hostile takeovers. 
B)  poison pills discourage potential high takeover bids. 
C)  shareholders have to approve the acceptance of poison pill strategies before a corporation can use them. 
D)  many institutional investors are opposed to the poison pill. 
A)  poison pills discourage hostile takeovers. 
B)  poison pills discourage potential high takeover bids. 
C)  shareholders have to approve the acceptance of poison pill strategies before a corporation can use them. 
D)  many institutional investors are opposed to the poison pill.

Question 14

Which of the following is not a true statement?

Accepted Answer

A)  Common shareholders have a residual claim to income. 
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments. 
C)  Common shareholders are legally entitled to some dividend. 
D)  A minority interest can still elect members to the board of directors under cumulative voting even though someone else owns 51% of the stock. 
A)  Common shareholders have a residual claim to income. 
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments. 
C)  Common shareholders are legally entitled to some dividend. 
D)  A minority interest can still elect members to the board of directors under cumulative voting even though someone else owns 51% of the stock.

Question 15

If the market value of a stock when the shares are trading ex-rights is $57 and 9 rights are required to buy one share of stock at the subscription price of $45, then the rights are worth $1.33.

Accepted Answer

A) True 
 B)False

Question 16

If a preferred stock is of the cumulative type,:

Accepted Answer

A)  the dividends must be paid on an equal basis with common so long earnings permit. 
B)  the dividends cannot be passed if they are not earned. 
C)  the cumulative voting rule applies in the exercise of the voting privilege. 
D)  unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common shareholders. 
A)  the dividends must be paid on an equal basis with common so long earnings permit. 
B)  the dividends cannot be passed if they are not earned. 
C)  the cumulative voting rule applies in the exercise of the voting privilege. 
D)  unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common shareholders.

Question 17

The disadvantage of a rights offering is:

Accepted Answer

A)  current shareholders are protected against dilution. 
B)  the firm has a built-in market of knowledgeable investors. 
C)  distribution costs are lower than a public offering. 
D)  shareholders who do not exercise or sell rights will have their ownership diluted. 
A)  current shareholders are protected against dilution. 
B)  the firm has a built-in market of knowledgeable investors. 
C)  distribution costs are lower than a public offering. 
D)  shareholders who do not exercise or sell rights will have their ownership diluted.

Question 18

"Preemptive rights" means that:

Accepted Answer

A)  existing shareholders can prevent management from issuing additional common stock. 
B)  common shareholders can "preempt" preferred shareholders for dividends. 
C)  existing common stock shareholders are guaranteed an opportunity to retain their proportional share of ownership of the firm. 
D)  management can preempt the right of shareholders to receive dividends if earnings are down. 
A)  existing shareholders can prevent management from issuing additional common stock. 
B)  common shareholders can "preempt" preferred shareholders for dividends. 
C)  existing common stock shareholders are guaranteed an opportunity to retain their proportional share of ownership of the firm. 
D)  management can preempt the right of shareholders to receive dividends if earnings are down.

Question 19

If a corporate charter includes a provision for preemptive rights, the shareholders:

Accepted Answer

A)  must sell their shares to the company. 
B)  get first option to buy additional issues of common shares. 
C)  may purchase existing treasury shares. 
D)  cannot utilize cumulative voting procedures. 
A)  must sell their shares to the company. 
B)  get first option to buy additional issues of common shares. 
C)  may purchase existing treasury shares. 
D)  cannot utilize cumulative voting procedures.

Question 20

A stock sells for $50 rights-on, the subscription price is $40. Nine rights are required to purchase one share. The value of a right is:

Accepted Answer

A)  $1.00. 
B)  $10.00. 
C)  $1.11. 
D)  $5.00. 
A)  $1.00. 
B)  $10.00. 
C)  $1.11. 
D)  $5.00.

American Depositary Receipts (ADRs) are:

Share classes are similar to bond ratings in that they are used to rank the performance of different corporation's stock.

Preferred and common stock dividends are a deductible expense for a corporation.

Preferred stock is the most used of all long-term securities because?

After a rights offering, the common stock will sell at the subscription price.

Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.

Corporations are able to issue preferred stock at a slightly lower pre-tax yield than debt.

To the individual recipient, preferred stock dividends offer no advantage over common stock dividends.

SED Corporation's shares are currently trading at $52.50. Shareholders have the right to buy 1 share of SED for every 5 rights they own at a price of $48.00. SED's rights trade at $_________?

A rights offering:

Because of tax considerations, corporations are able to issue preferred stock at a slightly lower yield than debt.

All of the following statements are true except:

Which of the following is not a true statement?

If the market value of a stock when the shares are trading ex-rights is $57 and 9 rights are required to buy one share of stock at the subscription price of $45, then the rights are worth $1.33.

If a preferred stock is of the cumulative type,:

The disadvantage of a rights offering is:

"Preemptive rights" means that:

If a corporate charter includes a provision for preemptive rights, the shareholders:

A stock sells for $50 rights-on, the subscription price is $40. Nine rights are required to purchase one share. The value of a right is:

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Dividend Policy and Retained Earnings

Derivative Securities

External Growth Through Mergers

International Financial Management

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Exam 17: Common and Preferred Stock Financing

American Depositary Receipts (ADRs) are:

Share classes are similar to bond ratings in that they are used to rank the performance of different corporation's stock.

Preferred and common stock dividends are a deductible expense for a corporation.

Preferred stock is the most used of all long-term securities because?

After a rights offering, the common stock will sell at the subscription price.

Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.

Corporations are able to issue preferred stock at a slightly lower pre-tax yield than debt.

To the individual recipient, preferred stock dividends offer no advantage over common stock dividends.

SED Corporation's shares are currently trading at $52.50. Shareholders have the right to buy 1 share of SED for every 5 rights they own at a price of $48.00. SED's rights trade at $_________?

A rights offering:

Because of tax considerations, corporations are able to issue preferred stock at a slightly lower yield than debt.

All of the following statements are true except:

Which of the following is not a true statement?

If the market value of a stock when the shares are trading ex-rights is $57 and 9 rights are required to buy one share of stock at the subscription price of $45, then the rights are worth $1.33.

If a preferred stock is of the cumulative type,:

The disadvantage of a rights offering is:

"Preemptive rights" means that:

If a corporate charter includes a provision for preemptive rights, the shareholders:

A stock sells for $50 rights-on, the subscription price is $40. Nine rights are required to purchase one share. The value of a right is:

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Underwriting

Long-Term Debt and Lease Financing

Dividend Policy and Retained Earnings

Derivative Securities

External Growth Through Mergers

International Financial Management

Filters