Question 1

Common shareholders have a legal claim to dividend income.

Accepted Answer

A) True 
 B)False  False

Question 2

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% B

Question 3

When a cumulative voting method is used,it is possible for those who hold less than a 50 percent interest to elect board members.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following is not true about rights trading on organized exchanges?

Accepted Answer

A)  Rights trade at low prices 
B)  Continuous trading of a right for long periods of time (similar to stocks) 
C)  Rights trading tends to surge during bull markets 
D)  The period during which rights may be bought,sold,or exercised is usually four to six weeks after what is termed the ex-rights date. 
A)  Rights trade at low prices 
B)  Continuous trading of a right for long periods of time (similar to stocks) 
C)  Rights trading tends to surge during bull markets 
D)  The period during which rights may be bought,sold,or exercised is usually four to six weeks after what is termed the ex-rights date.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Preferred stock dividends are a deductible expense for a corporation.

Accepted Answer

A) True 
 B)False

Question 7

Preferred and common stock dividends are a deductible expense for a corporation.

Accepted Answer

A) True 
 B)False

Question 8

Corporations are able to issue preferred stock at a slightly lower pre-tax yield than debt.

Accepted Answer

A) True 
 B)False

Question 9

American Depositary Receipts (ADRs)are:

Accepted Answer

A)  receipts sent to foreign shareholders who own American companies. 
B)  proof of ownership for Eurodollar deposits held by Americans. 
C)  certificates that have a legal claim on an ownership interest in a foreign company's common stock. 
D)  certificates in U.S.companies that allow foreign investors to buy shares of American companies. 
A)  receipts sent to foreign shareholders who own American companies. 
B)  proof of ownership for Eurodollar deposits held by Americans. 
C)  certificates that have a legal claim on an ownership interest in a foreign company's common stock. 
D)  certificates in U.S.companies that allow foreign investors to buy shares of American companies.

Question 10

A preferred stock issue contains a number of stipulations and provisions that define the shareholder's claim to income and assets.List and briefly describe these stipulations and provisions.

Accepted Answer

1.Cumulative dividends.Most preferred st

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Shareholders always have preemptive rights when new issues of stock are offered.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following actions will provide the shareholders with the least total wealth when a company makes a rights offering?

Accepted Answer

A)  Exercise the rights for new shares. 
B)  Sell the rights themselves and hold existing shares and cash. 
C)  Exercise the rights and sell the shares. 
D)  Do no sell or exercise the rights. 
A)  Exercise the rights for new shares. 
B)  Sell the rights themselves and hold existing shares and cash. 
C)  Exercise the rights and sell the shares. 
D)  Do no sell or exercise the rights.

Question 14

Which of the following is not a very common feature of preferred stock?

Accepted Answer

A)  Cumulative dividends 
B)  Voting rights 
C)  Call feature 
D)  Conversion feature 
A)  Cumulative dividends 
B)  Voting rights 
C)  Call feature 
D)  Conversion feature

Question 15

Preferred stock generally carries a higher interest rate than debt.

Accepted Answer

A) True 
 B)False

Question 16

Preferred shareholders have a contractual claim against a corporation for dividends not declared by the Board of Directors.

Accepted Answer

A) True 
 B)False

Question 17

If a preferred stock is of the cumulative type,:

Accepted Answer

A)  the dividends must be paid on an equal basis with common so long earnings permit. 
B)  the dividends cannot be passed if they are not earned. 
C)  the cumulative voting rule applies in the exercise of the voting privilege. 
D)  unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common shareholders. 
A)  the dividends must be paid on an equal basis with common so long earnings permit. 
B)  the dividends cannot be passed if they are not earned. 
C)  the cumulative voting rule applies in the exercise of the voting privilege. 
D)  unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common shareholders.

Question 18

To the security holder,preferred stock offers the highest risk and the lowest return.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The market price of floating rate preferred stock is less volatile than that of regular preferred stock.

Accepted Answer

A) True 
 B)False

Exam 17: Common and Preferred Stock Financing

Common shareholders have a legal claim to dividend income.

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?

When a cumulative voting method is used,it is possible for those who hold less than a 50 percent interest to elect board members.

Which of the following is not true about rights trading on organized exchanges?

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

Preferred stock dividends are a deductible expense for a corporation.

Preferred and common stock dividends are a deductible expense for a corporation.

Corporations are able to issue preferred stock at a slightly lower pre-tax yield than debt.

American Depositary Receipts (ADRs)are:

A preferred stock issue contains a number of stipulations and provisions that define the shareholder's claim to income and assets.List and briefly describe these stipulations and provisions.

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

Shareholders always have preemptive rights when new issues of stock are offered.

Which of the following actions will provide the shareholders with the least total wealth when a company makes a rights offering?

Which of the following is not a very common feature of preferred stock?

Preferred stock generally carries a higher interest rate than debt.

Preferred shareholders have a contractual claim against a corporation for dividends not declared by the Board of Directors.

If a preferred stock is of the cumulative type,:

To the security holder,preferred stock offers the highest risk and the lowest return.

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

The market price of floating rate preferred stock is less volatile than that of regular preferred stock.

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: Public and Private Placement

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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