Question 1

A corporation's net worth is composed of the:

Accepted Answer

A)  book value of common equity plus par value of debt. 
B)  par value plus additional paid-in capital. 
C)  retained earnings less treasury stock. 
D) book value of common equity plus preferred stock. 
A)  book value of common equity plus par value of debt. 
B)  par value plus additional paid-in capital. 
C)  retained earnings less treasury stock. 
D) book value of common equity plus preferred stock.

Question 2

A company is about to issue 1,000 new shares of stock at a market price of $33 per share. If the par value per share is $4, the increase in capital surplus from this stock issue will be:

Accepted Answer

A)  $33,000. 
B)  $4,000. 
C)  $29,000. 
D) $32,000. 
A)  $33,000. 
B)  $4,000. 
C)  $29,000. 
D) $32,000.

Question 3

The true value of a security is:

Accepted Answer

A)  the value of that security at some future date. 
B)  the sum of all future income from that security. 
C)  the amount of funds invested to date in the security. 
D) the price that incorporates all currently available information. 
A)  the value of that security at some future date. 
B)  the sum of all future income from that security. 
C)  the amount of funds invested to date in the security. 
D) the price that incorporates all currently available information.

Question 4

Shares of stock that have been issued and subsequently repurchased by the issuer are known as treasury stock.

Accepted Answer

A) True 
 B)False

Question 5

One way in which control of a corporation can be removed from the current board of directors is to:

Accepted Answer

A)  take away the directors' stock. 
B)  give voting power to management. 
C)  remove the Board's voting power. 
D) fight a proxy contest. 
A)  take away the directors' stock. 
B)  give voting power to management. 
C)  remove the Board's voting power. 
D) fight a proxy contest.

Question 6

When firms retain cash, they are generating funds internally thereby decreasing the amount of external funds needed.

Accepted Answer

A) True 
 B)False

Question 7

Any capital surplus shown by a firm on its balance sheet results from:

Accepted Answer

A)  not paying out all net income as dividends. 
B)  repurchasing shares for treasury stock. 
C)  issuing stock at a price higher than par value. 
D) retained earnings. 
A)  not paying out all net income as dividends. 
B)  repurchasing shares for treasury stock. 
C)  issuing stock at a price higher than par value. 
D) retained earnings.

Question 8

Disregarding issues of risk and return, why might it be important to shareholders and management alike as to which class of equity is issued (e.g., common, preferred, etc.)?

Accepted Answer

The primary differences between classes

Question 9

What procedures are used for elections to a firm's board of directors and other matters put to shareholders?

Accepted Answer

Most companies use a majority voting sys

Question 10

Discuss why more firms are turning to internally generated funds to finance new projects.

Accepted Answer

Many firms have a long-term goal of sust

Question 11

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

Accepted Answer

A)  Interest and principal payments are tax deductible. 
B)  Interest payments are tax deductible. 
C)  Principal payments are tax deductible. 
D) Seventy percent of interest payments are tax deductible. 
A)  Interest and principal payments are tax deductible. 
B)  Interest payments are tax deductible. 
C)  Principal payments are tax deductible. 
D) Seventy percent of interest payments are tax deductible.

Question 12

Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

Accepted Answer

A) True 
 B)False

Question 13

An independent outside director:

Accepted Answer

A)  is defined as a company employee who has no management responsibilities outside of the board. 
B)  cannot serve as the board chairman. 
C)  is prohibited from owning shares of the firm. 
D) can be a shareholder as long as he/she holds no management position in the firm outside of the board. 
A)  is defined as a company employee who has no management responsibilities outside of the board. 
B)  cannot serve as the board chairman. 
C)  is prohibited from owning shares of the firm. 
D) can be a shareholder as long as he/she holds no management position in the firm outside of the board.

Question 14

Which one of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend?

Accepted Answer

A)  The preferred stock should be selected because its after-tax yield is 0.17% higher. 
B)  The preferred stock should be selected because its after-tax yield is 0.80% higher. 
C)  The bond should be selected because its after-tax yield is 0.17% lower. 
D) The bond should be selected because its after-tax yield is 1.3% higher. 
A)  The preferred stock should be selected because its after-tax yield is 0.17% higher. 
B)  The preferred stock should be selected because its after-tax yield is 0.80% higher. 
C)  The bond should be selected because its after-tax yield is 0.17% lower. 
D) The bond should be selected because its after-tax yield is 1.3% higher.

Question 15

Holders of callable bonds know that the company will wish to buy the issue back if interest rates fall, and therefore the price of the bond will not rise above the call price.

Accepted Answer

A) True 
 B)False

Question 16

A firm's internally generated funds are calculated by:

Accepted Answer

A)  subtracting depreciation from net income. 
B)  adding depreciation to net income. 
C)  adding dividends to net income. 
D) subtracting dividends from net income plus depreciation. 
A)  subtracting depreciation from net income. 
B)  adding depreciation to net income. 
C)  adding dividends to net income. 
D) subtracting dividends from net income plus depreciation.

Question 17

A eurobond is defined as any bond that is denominated in euros.

Accepted Answer

A) True 
 B)False

Question 18

Compare the after-tax rates of return for a corporate investor from the following two investments: A 20-year corporate bond that sells for par and offers a 9% coupon versus an investment in preferred stock that sells for $40 per share and pays a $2.40 dividend. The corporation has a 35% tax rate.

Accepted Answer

Bond after-tax yield = 9%(1 -

Question 19

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

Accepted Answer

A)  $17,500 
B)  $32,500 
C)  $50,000 
D) $76,923 
A)  $17,500 
B)  $32,500 
C)  $50,000 
D) $76,923

Question 20

Show the capital accounts at the end of the first year of operation for a firm that, at the beginning of the year, issued 50,000 shares of $1.50 par value common stock for $15 per share, repurchased 5,000 shares during the year at $20 per share, and paid out (at the end of the year) 40% of earnings as dividends with a $0.50 per share dividend.

Accepted Answer

The answer of Show the capital accounts at the end...

Exam 14: Introduction to Corporate Financing

A corporation's net worth is composed of the:

A company is about to issue 1,000 new shares of stock at a market price of $33 per share. If the par value per share is $4, the increase in capital surplus from this stock issue will be:

The true value of a security is:

Shares of stock that have been issued and subsequently repurchased by the issuer are known as treasury stock.

One way in which control of a corporation can be removed from the current board of directors is to:

When firms retain cash, they are generating funds internally thereby decreasing the amount of external funds needed.

Any capital surplus shown by a firm on its balance sheet results from:

Disregarding issues of risk and return, why might it be important to shareholders and management alike as to which class of equity is issued (e.g., common, preferred, etc.)?

What procedures are used for elections to a firm's board of directors and other matters put to shareholders?

Discuss why more firms are turning to internally generated funds to finance new projects.

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

An independent outside director:

Which one of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend?

Holders of callable bonds know that the company will wish to buy the issue back if interest rates fall, and therefore the price of the bond will not rise above the call price.

A firm's internally generated funds are calculated by:

A eurobond is defined as any bond that is denominated in euros.

Compare the after-tax rates of return for a corporate investor from the following two investments: A 20-year corporate bond that sells for par and offers a 9% coupon versus an investment in preferred stock that sells for $40 per share and pays a $2.40 dividend. The corporation has a 35% tax rate.

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

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