Question 1

Internally generated cash is calculated as:
I. Retained earnings
II. Interest payments
II. Depreciation

Accepted Answer

A)  (I - II) 
B)  (I + II) 
C)  (I + III) 
D)  (I - III) 
A)  (I - II) 
B)  (I + II) 
C)  (I + III) 
D)  (I - III) C

Question 2

If a debenture is junior or subordinated, it:

Accepted Answer

A)  Has a higher priority status than specified creditors 
B)  Has been issued because the company is in default 
C)  Must give preference to the senior creditors in the event of default 
D)  Is secondary to equity 
A)  Has a higher priority status than specified creditors 
B)  Has been issued because the company is in default 
C)  Must give preference to the senior creditors in the event of default 
D)  Is secondary to equity C

Question 3

Briefly explain the voting rights of the shareholders.

Accepted Answer

The common stockholders have a right to vote, either in person or by proxy, on the appointments to the board of directors. Important decisions like mergers must be submitted
for shareholder approval. Different classes of common stocks can have different voting rights.

Question 4

Retained earnings are:

Accepted Answer

A)  The amount of cash that the firm has saved up 
B)  The difference between the market price of the stock and the book value 
C)  The difference between the net income earned and the dividends paid during a year 
D)  The amount of directly contributed equity capital in excess of par value 
A)  The amount of cash that the firm has saved up 
B)  The difference between the market price of the stock and the book value 
C)  The difference between the net income earned and the dividends paid during a year 
D)  The amount of directly contributed equity capital in excess of par value

Question 5

Generally, the book value of the shareholders' equity is represented by:

Accepted Answer

A)  The total assets minus the current liabilities 
B)  The total assets minus the net worth 
C)  The sum of preferred stock, debt and the capital surplus 
D)  The sum of the par value of common stock, the capital surplus and the accumulated retained earnings 
A)  The total assets minus the current liabilities 
B)  The total assets minus the net worth 
C)  The sum of preferred stock, debt and the capital surplus 
D)  The sum of the par value of common stock, the capital surplus and the accumulated retained earnings

Question 6

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

Accepted Answer

A)  Households 
B)  Institutional investors 
C)  Foreign entities 
D)  None of the above 
A)  Households 
B)  Institutional investors 
C)  Foreign entities 
D)  None of the above

Question 7

A corporation has 1,000,000 shares outstanding and 10 directors are up for election. If the stock features cumulative voting, approximately how many shares do you have to muster in order to guarantee yourself a place on the board of directors? (Ignore possible ties)

Accepted Answer

A)  500,000 
B)  200,000 
C)  100,000 
D)  None of the above 
A)  500,000 
B)  200,000 
C)  100,000 
D)  None of the above

Question 8

Which of the following investments allows investors to own assets indirectly via shares that are part of a pool of other investors?
I. RIET II) Trust
III. Option

Accepted Answer

A)  I only 
B)  I and II only 
C)  I, II, and III 
D)  III only 
A)  I only 
B)  I and II only 
C)  I, II, and III 
D)  III only

Question 9

The equity accounts of Bio-Tech Company is as follows:   Suppose the firm sells 2,000,000 new (additional) shares at a price of $20 per share. What is the new value of Common Shares account?

Accepted Answer

A)  12,000,000 
B)  10,000,000 
C)  2,000,000 
D)  None of the above 
A)  12,000,000 
B)  10,000,000 
C)  2,000,000 
D)  None of the above

Question 10

If you own 1,000 shares of stock and you can cast 5,000 votes for a particular director, then the stock features:

Accepted Answer

A)  Cumulative voting 
B)  Straight voting 
C)  Majority voting 
D)  None of the above 
A)  Cumulative voting 
B)  Straight voting 
C)  Majority voting 
D)  None of the above

Question 11

The following are the main characteristics of financial intermediaries except:
I. they may raise money in special ways
II. they invest in financial assets
III. they mainly invest in real assets

Accepted Answer

A)  I only 
B)  I and II only 
C)  II only 
D)  III only 
A)  I only 
B)  I and II only 
C)  II only 
D)  III only

Question 12

The rare event where a firm's existing directors and management compete with outsiders for the effective control of the corporation is called:

Accepted Answer

A)  majority voting 
B)  supermajority amendment 
C)  proxy contest 
D)  none of the above 
A)  majority voting 
B)  supermajority amendment 
C)  proxy contest 
D)  none of the above

Question 13

The following are characteristics of preferred stock except:
I. pays fixed dividends
II. has cumulative feature
III. has voting rights

Accepted Answer

A)  I only 
B)  I and II only 
C)  III only 
D)  II only 
A)  I only 
B)  I and II only 
C)  III only 
D)  II only

Question 14

Bio-Tech Company has had a very successful year and earnings are $21million. The company has 12 million shares outstanding and will pay a dividend of $1.00/share. The old value of retained earnings account is 125 million. What is the retained earnings for the year and the new value of retained earnings account?

Accepted Answer

A)  $21 million & $146 million 
B)  $9 million & $134 million 
C)  $12 million & $137 million 
D)  None of the above 
A)  $21 million & $146 million 
B)  $9 million & $134 million 
C)  $12 million & $137 million 
D)  None of the above

Question 15

Preference in position among creditors when it comes to repayment is called:

Accepted Answer

A)  Seniority 
B)  Security 
C)  Liquidation preference 
D)  Absolute priority 
A)  Seniority 
B)  Security 
C)  Liquidation preference 
D)  Absolute priority

Question 16

Financial intermediaries provide the following important functions for the economy ¾ the payment mechanism, borrowing and lending, and pooling risk.

Accepted Answer

A) True 
 B)False

Question 17

A firm has $100 million in current liabilities, $200 million in total long-term liabilities and
$300 million in stockholders' equity, total assets of $600 million. Calculate the debt ratio for the firm.

Accepted Answer

A)  40% 
B)  20% 
C)  50% 
D)  None of the above 
A)  40% 
B)  20% 
C)  50% 
D)  None of the above

Question 18

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

Accepted Answer

There are two different types of voting

Question 19

Which type of voting allows minority shareholders to allocate their votes in a manner to increase the chance of electing a director?

Accepted Answer

A)  Majority voting 
B)  Cumulative voting 
C)  Representative voting 
D)  Executive voting 
A)  Majority voting 
B)  Cumulative voting 
C)  Representative voting 
D)  Executive voting

Question 20

Generally (during the years 1989-2006), non-financial US corporations have financed their capital expenditures mostly through:

Accepted Answer

A)  By issuing new equity 
B)  Debt 
C)  Working capital 
D)  Internally generated cash 
A)  By issuing new equity 
B)  Debt 
C)  Working capital 
D)  Internally generated cash

Exam 14: An Overview of Corporate Financing

Internally generated cash is calculated as: I. Retained earnings II. Interest payments II. Depreciation

If a debenture is junior or subordinated, it:

Briefly explain the voting rights of the shareholders.

Retained earnings are:

Generally, the book value of the shareholders' equity is represented by:

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

A corporation has 1,000,000 shares outstanding and 10 directors are up for election. If the stock features cumulative voting, approximately how many shares do you have to muster in order to guarantee yourself a place on the board of directors? (Ignore possible ties)

Which of the following investments allows investors to own assets indirectly via shares that are part of a pool of other investors? I. RIET II) Trust III. Option

The equity accounts of Bio-Tech Company is as follows: Suppose the firm sells 2,000,000 new (additional) shares at a price of $20 per share. What is the new value of Common Shares account?

If you own 1,000 shares of stock and you can cast 5,000 votes for a particular director, then the stock features:

The following are the main characteristics of financial intermediaries except: I. they may raise money in special ways II. they invest in financial assets III. they mainly invest in real assets

The rare event where a firm's existing directors and management compete with outsiders for the effective control of the corporation is called:

The following are characteristics of preferred stock except: I. pays fixed dividends II. has cumulative feature III. has voting rights

Preference in position among creditors when it comes to repayment is called:

Financial intermediaries provide the following important functions for the economy ¾ the payment mechanism, borrowing and lending, and pooling risk.

A firm has $100 million in current liabilities, $200 million in total long-term liabilities and $300 million in stockholders' equity, total assets of $600 million. Calculate the debt ratio for the firm.

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

Which type of voting allows minority shareholders to allocate their votes in a manner to increase the chance of electing a director?

Generally (during the years 1989-2006), non-financial US corporations have financed their capital expenditures mostly through:

Goals and Governance of the Firm

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

Investment, Strategy, and Economic Rents

Agency Problems, Compensation, and Performance Measurement

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

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