Question 1

Convertible exchangeable preferred shares give the holder the sole right to exchange their preferred shares for common shares.

Accepted Answer

A) True 
 B)False

Question 2

The following are primary purchasers of preferred stock except:

Accepted Answer

A)  corporate investors. 
B)  insurance companies. 
C)  pension funds. 
D)  individual investors. 
A)  corporate investors. 
B)  insurance companies. 
C)  pension funds. 
D)  individual investors.

Question 3

A common shareholder cannot force a company into bankruptcy for eliminating the dividend.

Accepted Answer

A) True 
 B)False

Question 4

Preferred stock may be good for a company because it:

Accepted Answer

A)  expands the capital base of the firm without diluting the common stock ownership. 
B)  does not require interest payment in times of financial trouble, but are tax-deductible when dividends are paid. 
C)  is not as costly as common stock or bonds. 
D)  gives up no control even when dividend payments are missed. 
A)  expands the capital base of the firm without diluting the common stock ownership. 
B)  does not require interest payment in times of financial trouble, but are tax-deductible when dividends are paid. 
C)  is not as costly as common stock or bonds. 
D)  gives up no control even when dividend payments are missed.

Question 5

Define and describe the characteristics of American Depositary Receipts (ADRs).

Accepted Answer

Since foreign companies want to tap into

Question 6

Preferred stock is often sold by companies:

Accepted Answer

A)  to expand the capital base without incurring contractual debt obligation. 
B)  that have a large amount of assets and small amount of debt. 
C)  looking for the taxable shelter of preferred dividends. 
D)  that are trying to reduce their dividend obligations. 
A)  to expand the capital base without incurring contractual debt obligation. 
B)  that have a large amount of assets and small amount of debt. 
C)  looking for the taxable shelter of preferred dividends. 
D)  that are trying to reduce their dividend obligations.

Question 7

If SED's shares trade ex-rights at $51.75, carry a subscription price of $48 a share, and can be purchase by shareholders in a ratio of 5 rights per share, 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 8

The most important feature of the preemptive right is that the rights:

Accepted Answer

A)  may be sold for profit. 
B)  afford shareholders protection against dilution. 
C)  may be cumulatively voted. 
D)  are non-transferable. 
A)  may be sold for profit. 
B)  afford shareholders protection against dilution. 
C)  may be cumulatively voted. 
D)  are non-transferable.

Question 9

Under normal operating conditions the board of directors elected by:

Accepted Answer

A)  the common shareholders. 
B)  the preferred shareholders. 
C)  the bondholders. 
D)  the board of directors. 
A)  the common shareholders. 
B)  the preferred shareholders. 
C)  the bondholders. 
D)  the board of directors.

Question 10

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called:

Accepted Answer

A)  a preemptive right. 
B)  a poison pill. 
C)  ex-rights. 
D)  rights-on. 
A)  a preemptive right. 
B)  a poison pill. 
C)  ex-rights. 
D)  rights-on.

Question 11

The effect of a rights offering on a shareholder is:

Accepted Answer

A)  to increase his/her wealth. 
B)  to increase his/her wealth only if the new stock is purchased. 
C)  to decrease his/her wealth unless the stock is purchased. 
D)  to decrease his/her wealth if nothing is done. 
A)  to increase his/her wealth. 
B)  to increase his/her wealth only if the new stock is purchased. 
C)  to decrease his/her wealth unless the stock is purchased. 
D)  to decrease his/her wealth if nothing is done.

Question 12

Which of the following statements is true with respect to cumulative voting?

Accepted Answer

A)  Cumulative voting requires 33% of board members to be re-elected every three years. 
B)  Cumulative voting gives majority shareholders a better chance of being represented on the board of directors. 
C)  If 6 directors are to be elected and you own 100 shares, you may vote all 100 votes for one director and none for the others. 
D)  If 6 directors are to be elected and you own 100 shares, you may vote all 600 votes for one director and none for the others. 
A)  Cumulative voting requires 33% of board members to be re-elected every three years. 
B)  Cumulative voting gives majority shareholders a better chance of being represented on the board of directors. 
C)  If 6 directors are to be elected and you own 100 shares, you may vote all 100 votes for one director and none for the others. 
D)  If 6 directors are to be elected and you own 100 shares, you may vote all 600 votes for one director and none for the others.

Question 13

Shares purchased through a rights offering usually carry lower margin requirements.

Accepted Answer

A) True 
 B)False

Question 14

A poison pill will raise the potential for maximizing shareholder value because it deters takeover bids.

Accepted Answer

A) True 
 B)False

Question 15

XYZ's rights currently trade at $7.60. Each right can be used to buy one share of XYZ at $27.92 based on a subscription ratio of 5 rights for each share purchased. XYZ's current cum rights share price is _______.

Accepted Answer

A)  $73.52 
B)  $35.52 
C)  $65.92 
D)  $87.50 
A)  $73.52 
B)  $35.52 
C)  $65.92 
D)  $87.50

Question 16

A "poison pill":

Accepted Answer

A)  protects current shareholders against dilution. 
B)  may lower the potential for maximizing shareholder value by discouraging potential high takeover bids. 
C)  may attract potential investors who will take over the company. 
D)  are voted in by all shareholders. 
A)  protects current shareholders against dilution. 
B)  may lower the potential for maximizing shareholder value by discouraging potential high takeover bids. 
C)  may attract potential investors who will take over the company. 
D)  are voted in by all shareholders.

Question 17

XYZ corporation is issuing preferred stock yielding 10%, and ABC Corporation is considering buying the stock. XYZ's tax rate is 20% and ABC's tax rate is 34%. What is the aftertax preferred yield for ABC?

Accepted Answer

A)  3.4% 
B)  10.0% 
C)  6.6% 
D)  8.98% 
A)  3.4% 
B)  10.0% 
C)  6.6% 
D)  8.98%

Question 18

Krager Foods Corp. has 700,000 shares outstanding. General Grocery, one of its subsidiaries, is disgusted with current management practices and is trying to get some of its own people elected to the board of directors. There are 15 directors, and General Grocery controls proxies for 87,501 shares.
A) Under cumulative voting, how many directors can General Grocery elect?
B) How many shares will General Grocery have to acquire in order to elect 8 directors?

Accepted Answer

A) @#IMG-DLM& B) 8 d

Question 19

Which of the following are benefits of a rights offering?

Accepted Answer

A)  Rights offerings increase return on equity. 
B)  Rights offerings substantiate higher debt to equity ratios. 
C)  Rights offerings decrease earnings per share. 
D)  Rights offerings raise capital for the firm. 
A)  Rights offerings increase return on equity. 
B)  Rights offerings substantiate higher debt to equity ratios. 
C)  Rights offerings decrease earnings per share. 
D)  Rights offerings raise capital for the firm.

Question 20

The subscription price is generally _______ than the rights-on price and _______ than the ex-rights price.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Convertible exchangeable preferred shares give the holder the sole right to exchange their preferred shares for common shares.

The following are primary purchasers of preferred stock except:

A common shareholder cannot force a company into bankruptcy for eliminating the dividend.

Preferred stock may be good for a company because it:

Define and describe the characteristics of American Depositary Receipts (ADRs).

Preferred stock is often sold by companies:

If SED's shares trade ex-rights at $51.75, carry a subscription price of $48 a share, and can be purchase by shareholders in a ratio of 5 rights per share, SED's rights trade at ______.

The most important feature of the preemptive right is that the rights:

Under normal operating conditions the board of directors elected by:

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called:

The effect of a rights offering on a shareholder is:

Which of the following statements is true with respect to cumulative voting?

Shares purchased through a rights offering usually carry lower margin requirements.

A poison pill will raise the potential for maximizing shareholder value because it deters takeover bids.

XYZ's rights currently trade at $7.60. Each right can be used to buy one share of XYZ at $27.92 based on a subscription ratio of 5 rights for each share purchased. XYZ's current cum rights share price is _______.

A "poison pill":

XYZ corporation is issuing preferred stock yielding 10%, and ABC Corporation is considering buying the stock. XYZ's tax rate is 20% and ABC's tax rate is 34%. What is the aftertax preferred yield for ABC?

Which of the following are benefits of a rights offering?

The subscription price is generally _ than the rights-on price and _ than the ex-rights price.

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

Exam 17: Common and Preferred Stock Financing

Convertible exchangeable preferred shares give the holder the sole right to exchange their preferred shares for common shares.

The following are primary purchasers of preferred stock except:

A common shareholder cannot force a company into bankruptcy for eliminating the dividend.

Preferred stock may be good for a company because it:

Define and describe the characteristics of American Depositary Receipts (ADRs).

Preferred stock is often sold by companies:

If SED's shares trade ex-rights at $51.75, carry a subscription price of $48 a share, and can be purchase by shareholders in a ratio of 5 rights per share, SED's rights trade at ______.

The most important feature of the preemptive right is that the rights:

Under normal operating conditions the board of directors elected by:

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called:

The effect of a rights offering on a shareholder is:

Which of the following statements is true with respect to cumulative voting?

Shares purchased through a rights offering usually carry lower margin requirements.

A poison pill will raise the potential for maximizing shareholder value because it deters takeover bids.

XYZ's rights currently trade at $7.60. Each right can be used to buy one share of XYZ at $27.92 based on a subscription ratio of 5 rights for each share purchased. XYZ's current cum rights share price is _______.

A "poison pill":

XYZ corporation is issuing preferred stock yielding 10%, and ABC Corporation is considering buying the stock. XYZ's tax rate is 20% and ABC's tax rate is 34%. What is the aftertax preferred yield for ABC?

Which of the following are benefits of a rights offering?

The subscription price is generally _______ than the rights-on price and _______ than the ex-rights price.

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

The subscription price is generally _ than the rights-on price and _ than the ex-rights price.