Question 1

The subscription price is generally _______ than the rights-on price and _______ than the ex-rights price.

Accepted Answer

A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower 
A)  higher; higher 
B)  higher; lower 
C)  lower; higher 
D)  lower; lower

Question 2

Firm X has 150,000 outstanding shares and 9 directors.Joe Stone owns 37,500 shares of firm X.How many directors can Joe elect with cumulative voting?

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  3 
A)  0 
B)  1 
C)  2 
D)  3

Question 3

To the corporate investor,preferred stock offers which of the following advantages?

Accepted Answer

A)  A slightly higher yield than debt. 
B)  25% of preferred dividends are tax-exempt. 
C)  100% of preferred dividends are tax-exempt. 
D)  Less risk than bonds due to ownership. 
A)  A slightly higher yield than debt. 
B)  25% of preferred dividends are tax-exempt. 
C)  100% of preferred dividends are tax-exempt. 
D)  Less risk than bonds due to ownership.

Question 4

XYZ's rights currently trade at $7.60.Each right can be used to buy one share of XYZ at $27.92 based on a subscription ratio of 5 rights for each share purchased.XYZ's current cum rights share price is _______.

Accepted Answer

A)  $73.52 
B)  $35.52 
C)  $65.92 
D)  $87.50 
A)  $73.52 
B)  $35.52 
C)  $65.92 
D)  $87.50

Question 5

Preferred stock is the most used of all long-term securities because?

Accepted Answer

A)  Investors can get higher returns after taxes than from other investments. 
B)  Preferred dividends are considered regular (fixed)obligations. 
C)  Flotation costs are extremely low compared to bonds. 
D)  It is not the most used security due to no right to vote. 
A)  Investors can get higher returns after taxes than from other investments. 
B)  Preferred dividends are considered regular (fixed)obligations. 
C)  Flotation costs are extremely low compared to bonds. 
D)  It is not the most used security due to no right to vote.

Question 6

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 7

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 8

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 9

Ten rights are necessary to purchase one share of stock $84.A right sells for $6.30.The ex-rights value of the stock is:

Accepted Answer

A)  $147. 
B)  $105. 
C)  $63. 
D)  $154. 
A)  $147. 
B)  $105. 
C)  $63. 
D)  $154.

Question 10

To the individual recipient,preferred stock dividends offer no advantage over common stock dividends.

Accepted Answer

A) True 
 B)False

Question 11

The type of shareholder voting has become less important with the influence of takeover,leveraged buyouts,and other challenges to management control.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is true with respect to cumulative voting?

Accepted Answer

A)  Cumulative voting permits one votes for a single director. 
B)  Cumulative voting gives minority shareholders less chance of being represented on the board of directors. 
C)  If 6 directors are to be elected and you own 100 shares,you may vote all 600 votes for one director and none for the others. 
D)  Cumulative voting allows the voter to add one vote for every share owned. 
A)  Cumulative voting permits one votes for a single director. 
B)  Cumulative voting gives minority shareholders less chance of being represented on the board of directors. 
C)  If 6 directors are to be elected and you own 100 shares,you may vote all 600 votes for one director and none for the others. 
D)  Cumulative voting allows the voter to add one vote for every share owned.

Question 13

Participating preferred stock may receive an extra dividend in a particularly good year when earnings are above a stated level.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not a true statement?

Accepted Answer

A)  Common shareholders have a residual claim to income. 
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments. 
C)  Common shareholders are legally entitled to some dividend. 
D)  A minority interest can still elect members to the board of directors under cumulative voting even though someone else owns 51% of the stock. 
A)  Common shareholders have a residual claim to income. 
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments. 
C)  Common shareholders are legally entitled to some dividend. 
D)  A minority interest can still elect members to the board of directors under cumulative voting even though someone else owns 51% of the stock.

Question 15

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 16

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 17

A stock sells for $50 rights-on,the subscription price is $40.Nine rights are required to purchase one share.The value of a right is:

Accepted Answer

A)  $1.00. 
B)  $10.00. 
C)  $1.11. 
D)  $5.00. 
A)  $1.00. 
B)  $10.00. 
C)  $1.11. 
D)  $5.00.

Question 18

If a corporate charter includes a provision for preemptive rights,the shareholders:

Accepted Answer

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

Question 19

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 20

Generally the receipt of corporate bond interest is more valuable than preferred dividends to corporate investors.

Accepted Answer

A) True 
 B)False

Exam 17: Common and Preferred Stock Financing

The subscription price is generally _______ than the rights-on price and _______ than the ex-rights price.

Firm X has 150,000 outstanding shares and 9 directors.Joe Stone owns 37,500 shares of firm X.How many directors can Joe elect with cumulative voting?

To the corporate investor,preferred stock offers which of the following advantages?

XYZ's rights currently trade at $7.60.Each right can be used to buy one share of XYZ at $27.92 based on a subscription ratio of 5 rights for each share purchased.XYZ's current cum rights share price is _______.

Preferred stock is the most used of all long-term securities because?

Dutch auction preferred stock:

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

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:

Ten rights are necessary to purchase one share of stock $84.A right sells for $6.30.The ex-rights value of the stock is:

To the individual recipient,preferred stock dividends offer no advantage over common stock dividends.

The type of shareholder voting has become less important with the influence of takeover,leveraged buyouts,and other challenges to management control.

Which of the following statements is true with respect to cumulative voting?

Participating preferred stock may receive an extra dividend in a particularly good year when earnings are above a stated level.

Which of the following is not a true statement?

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

American Depositary Receipts:

A stock sells for $50 rights-on,the subscription price is $40.Nine rights are required to purchase one share.The value of a right is:

If a corporate charter includes a provision for preemptive rights,the shareholders:

A coattail provision is:

Generally the receipt of corporate bond interest is more valuable than preferred dividends to corporate investors.

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

Filters

The subscription price is generally _ than the rights-on price and _ than the ex-rights price.