Question 1

Briefly explain the two different types of voting systems used for the election of the board of directors.

Accepted Answer

There are two different types of voting that are used for electing boards of directors. The type used by a particular firm is specified in the firm's articles of incorporation. According to a majority voting system, each director is voted upon separately and the stockholders can cast one vote per share that they own. According to cumulative voting, all directors are voted upon jointly and stockholders can, if they want to, cast all their votes for just one candidate. Cumulative voting makes it easier for a minority group of shareholders to elect directors.

Question 2

Which of the following instruments gives the owner the right to purchase securities directly from the firm at a fixed price during a specified period of time?

Accepted Answer

A) Warrant 
B) Treasury stock 
C) Subordinated debt 
D) Short-term bank loan 
A) Warrant 
B) Treasury stock 
C) Subordinated debt 
D) Short-term bank loan A

Question 3

Suppose a group of outsiders solicits shareholders' authority to vote shares to replace existing management. This is called

Accepted Answer

A) a tender offer. 
B) a proxy contest. 
C) a vote of confidence. 
D) greenmail. 
A) a tender offer. 
B) a proxy contest. 
C) a vote of confidence. 
D) greenmail. B

Question 4

A firm has $100 million in current liabilities, $200 million in long-term debt, $300 million in stockholders' equity, and total book assets of $600 million. There are 100 million shares outstanding with a share price of $16. Calculate the debt ratio for the firm.

Accepted Answer

A) 11.1 percent 
B) 66.7 percent 
C) 50 percent 
D) 33 percent 
A) 11.1 percent 
B) 66.7 percent 
C) 50 percent 
D) 33 percent

Question 5

A corporate bond that can be exchanged for a fixed number of shares of stock is called a

Accepted Answer

A) callable bond. 
B) debenture. 
C) convertible bond. 
D) warrant. 
A) callable bond. 
B) debenture. 
C) convertible bond. 
D) warrant.

Question 6

Briefly explain the voting rights of shareholders.

Accepted Answer

The common stockholders have a right to

Question 7

The premium paid by investors to gain voting control, among the countries mentioned, is the highest in

Accepted Answer

A) the United States. 
B) Mexico. 
C) Italy. 
D) None of these options. 
A) the United States. 
B) Mexico. 
C) Italy. 
D) None of these options.

Question 8

LIBOR stands for London Interbank Offered Rate.

Accepted Answer

A) True 
 B)False

Question 9

Internally generated cash is calculated as

Accepted Answer

A) retained earnings minus interest payments. 
B) retained earnings plus interest payments. 
C) retained earnings plus depreciation. 
D) retained earnings minus depreciation. 
A) retained earnings minus interest payments. 
B) retained earnings plus interest payments. 
C) retained earnings plus depreciation. 
D) retained earnings minus depreciation.

Question 10

Suppose a firm sets aside assets to protect particular investors. These assets are called

Accepted Answer

A) repurchased shares. 
B) senior debt. 
C) subordinated debt. 
D) collateral. 
A) repurchased shares. 
B) senior debt. 
C) subordinated debt. 
D) collateral.

Question 11

In the United Sates, who holds the smallest portion of corporate equities?

Accepted Answer

A) Households 
B) Pension funds 
C) Mutual funds 
D) Insurance companies 
A) Households 
B) Pension funds 
C) Mutual funds 
D) Insurance companies

Question 12

Explain how shareholders might have lost control over corporations, relative to managers, over the years.

Accepted Answer

There are many possible answers to this

Question 13

Which of the following are not financial intermediaries?

Accepted Answer

A) Insurance companies 
B) Mutual funds 
C) Banking regulators 
D) Venture capital funds 
A) Insurance companies 
B) Mutual funds 
C) Banking regulators 
D) Venture capital funds

Question 14

Eurobonds are almost always denominated in euros.

Accepted Answer

A) True 
 B)False

Question 15

Recently, which of the following sources of funds has played the greatest role in the financing of U.S. nonfinancial firms?

Accepted Answer

A) Internal funds 
B) Net equity issues 
C) Net borrowing 
D) All of these sources were approximately the same. 
A) Internal funds 
B) Net equity issues 
C) Net borrowing 
D) All of these sources were approximately the same.

Question 16

When securities are sold by a firm, this is termed a(n):

Accepted Answer

A) primary issue. 
B) secondary transaction. 
C) OTC transaction. 
D) open operation. 
A) primary issue. 
B) secondary transaction. 
C) OTC transaction. 
D) open operation.

Question 17

Shares held by investors are known as

Accepted Answer

A) issued but not outstanding. 
B) issued and outstanding. 
C) authorized shares. 
D) treasury stock. 
A) issued but not outstanding. 
B) issued and outstanding. 
C) authorized shares. 
D) treasury stock.

Question 18

Which of the following is NOT a sensible reason for a firm to rely on internal funds?

Accepted Answer

A) Equity issues are generally expensive. 
B) A new bond issue may drive the firm's debt ratio too high. 
C) Financial markets interpret the issuance of equity unfavorably. 
D) All of these are sensible reasons to rely on internal funds. 
A) Equity issues are generally expensive. 
B) A new bond issue may drive the firm's debt ratio too high. 
C) Financial markets interpret the issuance of equity unfavorably. 
D) All of these are sensible reasons to rely on internal funds.

Question 19

Different classes of stocks are usually issued in order to

Accepted Answer

A) maintain ownership control, by holding the class of stock with greater voting rights. 
B) pay less dividends to different classes of stock. 
C) extract perquisites without the other class of stockholders knowing. 
D) maintain ownership control by holding the class of stock with greater voting rights and pay less dividends to different classes of stock. 
A) maintain ownership control, by holding the class of stock with greater voting rights. 
B) pay less dividends to different classes of stock. 
C) extract perquisites without the other class of stockholders knowing. 
D) maintain ownership control by holding the class of stock with greater voting rights and pay less dividends to different classes of stock.

Question 20

As a provider of funds to a corporation, owning which of the following corporate securities will give you the strongest rights to cash flow?

Accepted Answer

A) Short-term bank loan 
B) Preferred stock 
C) Common stock 
D) Long-term bond 
A) Short-term bank loan 
B) Preferred stock 
C) Common stock 
D) Long-term bond

Exam 14: An Overview of Corporate Financing

Briefly explain the two different types of voting systems used for the election of the board of directors.

Which of the following instruments gives the owner the right to purchase securities directly from the firm at a fixed price during a specified period of time?

Suppose a group of outsiders solicits shareholders' authority to vote shares to replace existing management. This is called

A firm has $100 million in current liabilities, $200 million in long-term debt, $300 million in stockholders' equity, and total book assets of $600 million. There are 100 million shares outstanding with a share price of $16. Calculate the debt ratio for the firm.

A corporate bond that can be exchanged for a fixed number of shares of stock is called a

Briefly explain the voting rights of shareholders.

The premium paid by investors to gain voting control, among the countries mentioned, is the highest in

LIBOR stands for London Interbank Offered Rate.

Internally generated cash is calculated as

Suppose a firm sets aside assets to protect particular investors. These assets are called

In the United Sates, who holds the smallest portion of corporate equities?

Explain how shareholders might have lost control over corporations, relative to managers, over the years.

Which of the following are not financial intermediaries?

Eurobonds are almost always denominated in euros.

Recently, which of the following sources of funds has played the greatest role in the financing of U.S. nonfinancial firms?

When securities are sold by a firm, this is termed a(n):

Shares held by investors are known as

Which of the following is NOT a sensible reason for a firm to rely on internal funds?

Different classes of stocks are usually issued in order to

As a provider of funds to a corporation, owning which of the following corporate securities will give you the strongest rights to cash flow?

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Working Capital Management

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters