Exam 14: Security Structures and Determining Enterprise Values

A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share.

By issuing preferred stock, and thus forfeiting bankruptcy rights from the use of debt, the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization.

The Black and Scholes model requires an exercise price as an input.

Which of the following offers the option where the dividend obligation can be satisfied in cash or by issuing additional par amounts of the preferred security?

N(h) in the Black and Scholes model involves the use of the:]

Convertible debt is debt that converts into preferred stock.

Convertible preferred stockholders have the right to convert a preferred share into a specified number of common shares at any time after the expiration date.

Convertible notes are debt allowing for conversion into stock at a price set by a future financing round.

A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time.

The unadjusted Black and Scholes model is a model for determining the value of a warrant to buy a new share.

Which of the following requires that all previously unpaid preferred dividends must be paid prior to any common dividend?

Which of the following is an example of a put option that is "at the money"?

Which of the following is not an input to the Black and Scholes model?

The right to buy a specified asset at a specified price on a specified date is called a(n):

Preferred stock is the equity claim senior to common stock and providing preference on dividends but not liquidation proceeds.

An alternative approach to the enterprise valuation method adds the tax shield from paying interest back into the flows and discounts at a before-tax weighted average cost of capital.

An option not currently worth exercising is said to be "out of the money."

Which of the following is not a component of a preferred stock's security structure?

Convertible debt is debt with the option to exchange it into nonconvertible or straight debt.

Warrant valuation (as presented in this text) is similar to option valuation except that one applies a dilution factor to the option value to arrive at a warrant value.