Question 1

When comparing common stock of the same company it is fair to say that:

Accepted Answer

A)  all shares, no matter how many classes, are all created with the same equal rights. 
B)  companies sometimes have two different classes of shares with unequal rights to dividends and votes. 
C)  the securities commissions allow only one class of common stock. 
D)  investors are indifferent between class A and class B shares. 
A)  all shares, no matter how many classes, are all created with the same equal rights. 
B)  companies sometimes have two different classes of shares with unequal rights to dividends and votes. 
C)  the securities commissions allow only one class of common stock. 
D)  investors are indifferent between class A and class B shares.

Question 2

Both preferred and common shareholders are entitled to receive all or a portion of a corporation's residual income.

Accepted Answer

A) True 
 B)False

Question 3

If the shareholder is no better off in terms of total valuation, why undertake a rights offering? What are the advantages of a rights offering?

Accepted Answer

There are a number of possible advantage

Question 4

The dividend rate paid on floating rate preferred stock will be equal to the market rate at the time dividends are paid.

Accepted Answer

A) True 
 B)False

Question 5

American Depositary Receipts:

Accepted Answer

A)  have annual reports and financial statements presented in English. 
B)  pay dividends in Euro's. 
C)  are more liquid and more expensive to buy than foreign stock. 
D)  are an alternative method to list on the world's largest capital market, the TSX. 
A)  have annual reports and financial statements presented in English. 
B)  pay dividends in Euro's. 
C)  are more liquid and more expensive to buy than foreign stock. 
D)  are an alternative method to list on the world's largest capital market, the TSX.

Question 6

The difference between the rights-on and ex-rights price is equal to the subscription price divided by N.

Accepted Answer

A) True 
 B)False

Question 7

A coattail provision is:

Accepted Answer

A)  an anti-takeover device. 
B)  designed to bring all shareholders a similar price offer. 
C)  a motivational tool for employees. 
D)  a means of placing shares in friendly hands. 
A)  an anti-takeover device. 
B)  designed to bring all shareholders a similar price offer. 
C)  a motivational tool for employees. 
D)  a means of placing shares in friendly hands.

Question 8

A proxy is:

Accepted Answer

A)  a device for circumventing regular voting procedures. 
B)  a coupon attached to each share of stock and used by the shareholder in casting his vote on current issues. 
C)  an authorization of a registered shareholder to another person to act in his place at the general meeting. 
D)  a warrant allowing a shareholder to purchase a specified number of additional shares at a given price. 
A)  a device for circumventing regular voting procedures. 
B)  a coupon attached to each share of stock and used by the shareholder in casting his vote on current issues. 
C)  an authorization of a registered shareholder to another person to act in his place at the general meeting. 
D)  a warrant allowing a shareholder to purchase a specified number of additional shares at a given price.

Question 9

Dutch auction preferred stock:

Accepted Answer

A)  is issued first to the bidder willing to accept the lowest yield. 
B)  matures every seventeen weeks and is re-auctioned at a subsequent bidding. 
C)  allows foreign investors to take advantage of preferred stock tax benefits. 
D)  occurs only in Europe. 
A)  is issued first to the bidder willing to accept the lowest yield. 
B)  matures every seventeen weeks and is re-auctioned at a subsequent bidding. 
C)  allows foreign investors to take advantage of preferred stock tax benefits. 
D)  occurs only in Europe.

Question 10

If a company has preferred stock, it must pay the dividends on the preferred even if it shows no profit for the year.

Accepted Answer

A) True 
 B)False

Question 11

Share classes may differ in both voting rights and dividend rights.

Accepted Answer

A) True 
 B)False

Question 12

Pre-emptive rights do not protect shareholders from dilution of their ownership position.

Accepted Answer

A) True 
 B)False

Question 13

A stock sells for $45 rights-on, the subscription price is $41. Seven rights are required to purchase one share. The value of a right is:

Accepted Answer

A)  $5.50. 
B)  $0.50. 
C)  $5.00. 
D)  $0.57. 
A)  $5.50. 
B)  $0.50. 
C)  $5.00. 
D)  $0.57.

Question 14

The Jersey Corp. is considering four investments. Which provide the highest aftertax return for Jersey Corp. If it is in the 40% tax bracket?

Accepted Answer

A)  Government of Canada bonds at 12.0% 
B)  Corporate bonds at 13.2% 
C)  Municipal bonds at 8.4% 
D)  Preferred stock at 10.8% 
A)  Government of Canada bonds at 12.0% 
B)  Corporate bonds at 13.2% 
C)  Municipal bonds at 8.4% 
D)  Preferred stock at 10.8%

Question 15

Advantages that the American Depositary Receipts (ADRs) have over investing in actual shares of a foreign stock include all but the following;

Accepted Answer

A)  ADRs are an effective barrier to foreign currency risk. 
B)  Unlike direct foreign stock, ADRs have financial statements presented in a US GAAP or IFRS format. 
C)  Dividends are paid in dollars and easier to collect than actual shares of foreign stock. 
D)  ADRs are more liquid and less expensive than buying foreign stock directly. 
A)  ADRs are an effective barrier to foreign currency risk. 
B)  Unlike direct foreign stock, ADRs have financial statements presented in a US GAAP or IFRS format. 
C)  Dividends are paid in dollars and easier to collect than actual shares of foreign stock. 
D)  ADRs are more liquid and less expensive than buying foreign stock directly.

Question 16

The difference between the rights-on and ex-rights common stock price is equal to the value of a right.

Accepted Answer

A) True 
 B)False

Question 17

Pre-emptive rights provision ensures that management cannot subvert the position of present shareholders by selling shares to outside interests without first offering them to current shareholders.

Accepted Answer

A) True 
 B)False

Question 18

American Depositary Receipts:

Accepted Answer

A)  do not have annual reports. 
B)  pay dividends in euros. 
C)  are less liquid and less expensive to buy than foreign stock. 
D)  are more liquid and less expensive to buy than foreign stock. 
A)  do not have annual reports. 
B)  pay dividends in euros. 
C)  are less liquid and less expensive to buy than foreign stock. 
D)  are more liquid and less expensive to buy than foreign stock.

Question 19

Describe income trusts. What is the purpose of an income trust?

Accepted Answer

Income trusts allow a firm to raise addi

Question 20

Given that there are 4,000,000 shares outstanding in a corporation, how many shares will be required for a minority group of shareholders to elect 3 of the 11 members on the board of directors? (Assume cumulative voting required)

Accepted Answer

A)  800,001 
B)  1,000,001 
C)  1,090,910 
D)  1,000,000 
A)  800,001 
B)  1,000,001 
C)  1,090,910 
D)  1,000,000

Exam 17: Common and Preferred Stock Financing

When comparing common stock of the same company it is fair to say that:

Both preferred and common shareholders are entitled to receive all or a portion of a corporation's residual income.

If the shareholder is no better off in terms of total valuation, why undertake a rights offering? What are the advantages of a rights offering?

The dividend rate paid on floating rate preferred stock will be equal to the market rate at the time dividends are paid.

American Depositary Receipts:

The difference between the rights-on and ex-rights price is equal to the subscription price divided by N.

A coattail provision is:

A proxy is:

Dutch auction preferred stock:

If a company has preferred stock, it must pay the dividends on the preferred even if it shows no profit for the year.

Share classes may differ in both voting rights and dividend rights.

Pre-emptive rights do not protect shareholders from dilution of their ownership position.

A stock sells for $45 rights-on, the subscription price is $41. Seven rights are required to purchase one share. The value of a right is:

The Jersey Corp. is considering four investments. Which provide the highest aftertax return for Jersey Corp. If it is in the 40% tax bracket?

Advantages that the American Depositary Receipts (ADRs) have over investing in actual shares of a foreign stock include all but the following;

The difference between the rights-on and ex-rights common stock price is equal to the value of a right.

Pre-emptive rights provision ensures that management cannot subvert the position of present shareholders by selling shares to outside interests without first offering them to current shareholders.

American Depositary Receipts:

Describe income trusts. What is the purpose of an income trust?

Given that there are 4,000,000 shares outstanding in a corporation, how many shares will be required for a minority group of shareholders to elect 3 of the 11 members on the board of directors? (Assume cumulative voting required)

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