Question 1

Assume a firm with 5,000 shares outstanding earns $10 per share and has a 30% plowback ratio. These earnings will cause retained earnings to:

Accepted Answer

A)  increase by $15,000. 
B)  increase by $50,000. 
C)  decrease by $15,000. 
D) decrease by $50,000. 
A)  increase by $15,000. 
B)  increase by $50,000. 
C)  decrease by $15,000. 
D) decrease by $50,000. A

Question 2

Preferred stock dividends:

Accepted Answer

A)  have preference over bond interest payments. 
B)  are guaranteed to be paid at least annually. 
C)  are excluded from the taxable income of their recipients. 
D) have priority over common stock dividends. 
A)  have preference over bond interest payments. 
B)  are guaranteed to be paid at least annually. 
C)  are excluded from the taxable income of their recipients. 
D) have priority over common stock dividends. D

Question 3

In a bankruptcy situation, funded debt will be repaid while unfunded debt will not.

Accepted Answer

A) True 
 B)False  False

Question 4

Which one of the following statements is true with respect to financial and product markets?

Accepted Answer

A)  In product markets, companies rarely find investments that yield a positive NPV. 
B)  Financial markets face fast-moving competition. 
C)  Competition in financial markets is not as thorough as in product markets. 
D) Competition in product markets is more intense than in financial markets. 
A)  In product markets, companies rarely find investments that yield a positive NPV. 
B)  Financial markets face fast-moving competition. 
C)  Competition in financial markets is not as thorough as in product markets. 
D) Competition in product markets is more intense than in financial markets.

Question 5

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting. How many votes will the shareholder cast for Director "A" if four directors are to be elected and the maximum number of votes are cast for "A"?

Accepted Answer

A)  25 
B)  100 
C)  200 
D) 400 
A)  25 
B)  100 
C)  200 
D) 400

Question 6

Historically, internally generated cash covers less than half of the non-financial firms' capital requirements in the U.S.

Accepted Answer

A) True 
 B)False

Question 7

Declassification of a firm's board tends to increase the market value of the firm's stock.

Accepted Answer

A) True 
 B)False

Question 8

A stock's par value is represented by the:

Accepted Answer

A)  maturity value of the stock. 
B)  price at which each share is recorded. 
C)  price at which an investor could sell the stock. 
D) price received by the firm when the stock was issued. 
A)  maturity value of the stock. 
B)  price at which each share is recorded. 
C)  price at which an investor could sell the stock. 
D) price received by the firm when the stock was issued.

Question 9

Assume a corporation has cumulative voting and there are two directors up for election. What is the minimum number of votes a shareholder who owns 100 shares can cast for Candidate Jones if there are a total of 5 candidates?

Accepted Answer

A)  0 
B)  20 
C)  40 
D) 100 
A)  0 
B)  20 
C)  40 
D) 100

Question 10

One common reason for issuing two distinct classes of common stock is to:

Accepted Answer

A)  sell different classes to increase profits. 
B)  allow one stock to increase in price while the other class declines. 
C)  restrict voting privileges from some shareholders. 
D) conserve cash by offering dividends to only one class of stockholders. 
A)  sell different classes to increase profits. 
B)  allow one stock to increase in price while the other class declines. 
C)  restrict voting privileges from some shareholders. 
D) conserve cash by offering dividends to only one class of stockholders.

Question 11

When a firm issues 50,000 shares with a par value of $5 and a market price of $22 per share, additional paid in capital will:

Accepted Answer

A)  decrease by $250,000. 
B)  increase by $250,000. 
C)  increase by $850,000. 
D) increase by $1,100,000. 
A)  decrease by $250,000. 
B)  increase by $250,000. 
C)  increase by $850,000. 
D) increase by $1,100,000.

Question 12

Which one of these accounts is a source of internal funding?

Accepted Answer

A)  Retained earnings 
B)  Common stock 
C)  Bonds payable 
D) Preferred stock 
A)  Retained earnings 
B)  Common stock 
C)  Bonds payable 
D) Preferred stock

Question 13

Funded debt refers to those liabilities that:

Accepted Answer

A)  have established a sinking fund for repayment. 
B)  are not callable at the option of the firm. 
C)  are secured by specific collateral. 
D) have a maturity of more than one year remaining. 
A)  have established a sinking fund for repayment. 
B)  are not callable at the option of the firm. 
C)  are secured by specific collateral. 
D) have a maturity of more than one year remaining.

Question 14

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

Accepted Answer

A) True 
 B)False

Question 15

How does competition in financial markets compare to the competition that can be found in product markets?

Accepted Answer

A)  Financial markets are much more competitive. 
B)  Financial markets are much less competitive. 
C)  Both markets are similar in competition. 
D) Financial markets are not competitive, due to regulation. 
A)  Financial markets are much more competitive. 
B)  Financial markets are much less competitive. 
C)  Both markets are similar in competition. 
D) Financial markets are not competitive, due to regulation.

Question 16

A corporation with funded fixed-rate debt might prefer floating-rate debt if it thought that:

Accepted Answer

A)  interest rates would be declining. 
B)  interest rates would be increasing. 
C)  its bond rating might be lowered. 
D) its bonds were going to be converted into equity. 
A)  interest rates would be declining. 
B)  interest rates would be increasing. 
C)  its bond rating might be lowered. 
D) its bonds were going to be converted into equity.

Question 17

If the Beta Co. issues $100 million worth of preferred stock, what will happen to its net worth if book value of common equity is $500 million?

Accepted Answer

A)  It will increase by $400 million. 
B)  It will decrease by $100 million. 
C)  It will increase to $600 million. 
D) It will decrease to $400 million. 
A)  It will increase by $400 million. 
B)  It will decrease by $100 million. 
C)  It will increase to $600 million. 
D) It will decrease to $400 million.

Question 18

What is the most commonly bundled type of loan in the asset-backed bond category?

Accepted Answer

A)  Automobile loans 
B)  Mortgages 
C)  Credit card receivables 
D) Student loans 
A)  Automobile loans 
B)  Mortgages 
C)  Credit card receivables 
D) Student loans

Question 19

What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $55 per share?

Accepted Answer

A)  The bondholder will lose $100. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D) The bondholder will choose to convert. 
A)  The bondholder will lose $100. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D) The bondholder will choose to convert.

Question 20

For most firms, the majority of their funding is from external sources.

Accepted Answer

A) True 
 B)False

Exam 14: Introduction to Corporate Financing

Assume a firm with 5,000 shares outstanding earns $10 per share and has a 30% plowback ratio. These earnings will cause retained earnings to:

Preferred stock dividends:

In a bankruptcy situation, funded debt will be repaid while unfunded debt will not.

Which one of the following statements is true with respect to financial and product markets?

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting. How many votes will the shareholder cast for Director "A" if four directors are to be elected and the maximum number of votes are cast for "A"?

Historically, internally generated cash covers less than half of the non-financial firms' capital requirements in the U.S.

Declassification of a firm's board tends to increase the market value of the firm's stock.

A stock's par value is represented by the:

Assume a corporation has cumulative voting and there are two directors up for election. What is the minimum number of votes a shareholder who owns 100 shares can cast for Candidate Jones if there are a total of 5 candidates?

One common reason for issuing two distinct classes of common stock is to:

When a firm issues 50,000 shares with a par value of $5 and a market price of $22 per share, additional paid in capital will:

Which one of these accounts is a source of internal funding?

Funded debt refers to those liabilities that:

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

How does competition in financial markets compare to the competition that can be found in product markets?

A corporation with funded fixed-rate debt might prefer floating-rate debt if it thought that:

If the Beta Co. issues $100 million worth of preferred stock, what will happen to its net worth if book value of common equity is $500 million?

What is the most commonly bundled type of loan in the asset-backed bond category?

What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $55 per share?

For most firms, the majority of their funding is from external sources.

Goals and Governance of the Corporation

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters