Question 1

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  False

Question 2

Tricki Corp stock sells for $45 rights-on, and the subscription price is $35. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is Tricki's expected price when it begins trading ex-rights?

Accepted Answer

A)  $47.23 
B)  $44.00 
C)  $44.09 
D)  $45.00 
A)  $47.23 
B)  $44.00 
C)  $44.09 
D)  $45.00 C

Question 3

Which of the following statements about floating rate preferred stock is true?

Accepted Answer

A)  The dividend rate changes quarterly. 
B)  The price of the stock fluctuates with the market. 
C)  The dividend rate is tied to the inflation rate. 
D)  More than one of the options is true. 
A)  The dividend rate changes quarterly. 
B)  The price of the stock fluctuates with the market. 
C)  The dividend rate is tied to the inflation rate. 
D)  More than one of the options is true. A

Question 4

When a stock sells ex-rights, the sale of the shares no longer entitles the purchaser to receive a right to purchase future stock.

Accepted Answer

A) True 
 B)False

Question 5

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

Accepted Answer

A) True 
 B)False

Question 6

North stock sells for $65 rights-on, and the subscription price is $55. Nine rights are required to purchase one share. The value of a right is ________.

Accepted Answer

A)  $0.11 
B)  $1.11 
C)  $1.00 
D)  $1.50  
A)  $0.11 
B)  $1.11 
C)  $1.00 
D)  $1.50

Question 7

Under normal operating conditions, the board of directors is elected by

Accepted Answer

A)  the common stockholders. 
B)  the preferred stockholders. 
C)  the bondholders. 
D)  two of the options are true. 
A)  the common stockholders. 
B)  the preferred stockholders. 
C)  the bondholders. 
D)  two of the options are true.

Question 8

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)  has no future negative ramifications 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)  has no future negative ramifications when dividend payments are missed

Question 9

American Depository Receipts (ADRs) are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 10

Each common stockholder has the ability to vote, and may assign a proxy if they desire to pass the voting right along.

Accepted Answer

A) True 
 B)False

Question 11

Common stockholders may assign a proxy, or the power to cast their ballot, only when majority voting is in place.

Accepted Answer

A) True 
 B)False

Question 12

If a corporate charter includes a provision for pre emptive rights, the original stockholders

Accepted Answer

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

Question 13

If the current market value of Markowitz Corp stock is $61 and 10 rights are required to buy one additional share of Markowitz at the subscription price of $50, then the rights are worth $1.00.
Based on Formula 17-3: (61 - 50)/(10 + 1) = $1

Accepted Answer

A) True 
 B)False

Question 14

Stockholders always have pre emptive rights when new issues of stock are offered.

Accepted Answer

A) True 
 B)False

Question 15

The par value on a preferred stock entitles the holder to

Accepted Answer

A)  priority on all cumulative dividends. 
B)  an established amount of money if the company is liquidated. 
C)  a minimum amount of convertible common stock. 
D)  none of these options are true. 
A)  priority on all cumulative dividends. 
B)  an established amount of money if the company is liquidated. 
C)  a minimum amount of convertible common stock. 
D)  none of these options are true.

Question 16

The "convertible exchangeable" feature of preferred shares gives companies the sole right to force preferred stock holders to exchange for common stock.

Accepted Answer

A) True 
 B)False

Question 17

Common stockholders have a residual claim to income; in other words they are last in line during an elimination of the company.

Accepted Answer

A) True 
 B)False

Question 18

Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

Accepted Answer

A) True 
 B)False

Question 19

A rights offering

Accepted Answer

A)  gives the 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 the 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 20

The floating rate feature on preferred stock allows the shareholders

Accepted Answer

A)  to receive more dividends than the quoted yield when the firm enjoys a good year. 
B)  to pay lower taxes when the dividend yield increases. 
C)  to receive dividends that the corporation did not pay in previous years. 
D)  to receive a higher or lower dividend yield depending on current competitive market conditions. 
A)  to receive more dividends than the quoted yield when the firm enjoys a good year. 
B)  to pay lower taxes when the dividend yield increases. 
C)  to receive dividends that the corporation did not pay in previous years. 
D)  to receive a higher or lower dividend yield depending on current competitive market conditions.

Exam 17: Common and Preferred Stock Financing

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

Tricki Corp stock sells for $45 rights-on, and the subscription price is $35. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is Tricki's expected price when it begins trading ex-rights?

Which of the following statements about floating rate preferred stock is true?

When a stock sells ex-rights, the sale of the shares no longer entitles the purchaser to receive a right to purchase future stock.

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

North stock sells for $65 rights-on, and the subscription price is $55. Nine rights are required to purchase one share. The value of a right is ________.

Under normal operating conditions, the board of directors is elected by

Preferred stock may be good for a company because it

American Depository Receipts (ADRs) are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Each common stockholder has the ability to vote, and may assign a proxy if they desire to pass the voting right along.

Common stockholders may assign a proxy, or the power to cast their ballot, only when majority voting is in place.

If a corporate charter includes a provision for pre emptive rights, the original stockholders

If the current market value of Markowitz Corp stock is $61 and 10 rights are required to buy one additional share of Markowitz at the subscription price of $50, then the rights are worth $1.00. Based on Formula 17-3: (61 - 50)/(10 + 1) = $1

Stockholders always have pre emptive rights when new issues of stock are offered.

The par value on a preferred stock entitles the holder to

The "convertible exchangeable" feature of preferred shares gives companies the sole right to force preferred stock holders to exchange for common stock.

Common stockholders have a residual claim to income; in other words they are last in line during an elimination of the company.

Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

A rights offering

The floating rate feature on preferred stock allows the shareholders

The Goals and Activities 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 Banking

Long-Term Debt and Lease Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

External Growth Through Mergers

International Financial Management

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