Question 1

All of the following are types of innovative bonds except:

Accepted Answer

A)  preferred stock. 
B)  asset-backed bonds. 
C)  pass-through certificates. 
D) mortality bonds. 
A)  preferred stock. 
B)  asset-backed bonds. 
C)  pass-through certificates. 
D) mortality bonds.

Question 2

Privately placed debt must be held until maturity and cannot be resold.

Accepted Answer

A) True 
 B)False

Question 3

Illustrate the difference between majority and cumulative voting systems using as an example a shareholder who owns 1,000 shares and an election in which three directors will be selected. Why might shareholders care about which voting system is adopted?

Accepted Answer

In the majority voting system, this shar

Question 4

Which one of these statements is correct regarding U.S. firms during the period 1995-2012?

Accepted Answer

A)  Firms have rarely relied on debt financing. 
B)  Internal funds have provided less than half of the firms financing needs. 
C)  Firms have repurchased more equity than they have sold. 
D) Debt is used to fund approximately half of the firms financing needs. 
A)  Firms have rarely relied on debt financing. 
B)  Internal funds have provided less than half of the firms financing needs. 
C)  Firms have repurchased more equity than they have sold. 
D) Debt is used to fund approximately half of the firms financing needs.

Question 5

The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

Accepted Answer

A) True 
 B)False

Question 6

One way that investors contribute capital to the firm is by:

Accepted Answer

A)  the plowing back of money into retained earnings. 
B)  paying less than par value for the stock. 
C)  letting their warrants expire unexercised. 
D) increasing the amount of treasury stock. 
A)  the plowing back of money into retained earnings. 
B)  paying less than par value for the stock. 
C)  letting their warrants expire unexercised. 
D) increasing the amount of treasury stock.

Question 7

Would you expect the price of a 10-year floating-rate bond to be more or less sensitive to changes in interest rates than the price of a 10-year fixed-rate bond?

Accepted Answer

Because the coupon on floating-rate debt

Question 8

What is the book value per share of equity for a firm with $1 million in net common equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares outstanding?

Accepted Answer

A)  $38.00 
B)  $40.00 
C)  $47.50 
D) $50.00 
A)  $38.00 
B)  $40.00 
C)  $47.50 
D) $50.00

Question 9

The system of electing a board of directors where each director is voted on separately is known as:

Accepted Answer

A)  majority voting. 
B)  supermajority voting. 
C)  cumulative voting. 
D) proxy voting. 
A)  majority voting. 
B)  supermajority voting. 
C)  cumulative voting. 
D) proxy voting.

Question 10

How much will be recorded as a firm's additional paid-in capital if the firm issues 1 million shares that have a $5 par value for $15 per share?

Accepted Answer

A)  $0 
B)  $5 million 
C)  $10 million 
D) $15 million 
A)  $0 
B)  $5 million 
C)  $10 million 
D) $15 million

Question 11

A company's board of directors is primarily an agent of the company's:

Accepted Answer

A)  management. 
B)  employees. 
C)  shareholders. 
D) management and employees. 
A)  management. 
B)  employees. 
C)  shareholders. 
D) management and employees.

Question 12

An efficient capital market is one in which:

Accepted Answer

A)  all securities that investors desire are offered. 
B)  all transactions are closed within 2 business days. 
C)  current prices reflect all current information. 
D) the lowest interest rates are offered. 
A)  all securities that investors desire are offered. 
B)  all transactions are closed within 2 business days. 
C)  current prices reflect all current information. 
D) the lowest interest rates are offered.

Question 13

Differences in classes of stock often appear in their voting rights.

Accepted Answer

A) True 
 B)False

Question 14

If a corporation has more shares issued than outstanding, then:

Accepted Answer

A)  the Board of Directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D) unexercised stock warrants exist. 
A)  the Board of Directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D) unexercised stock warrants exist.

Question 15

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share. Which one of these correctly states the resulting change in the equity accounts?

Accepted Answer

A)  Capital surplus will increase by $180,000. 
B)  Retained earnings will decrease by $210,000. 
C)  Common stock will increase by $15,000. 
D) Common stock will increase by $210,000. 
A)  Capital surplus will increase by $180,000. 
B)  Retained earnings will decrease by $210,000. 
C)  Common stock will increase by $15,000. 
D) Common stock will increase by $210,000.

Question 16

What tax liability is created by the receipt of $50,000 in preferred stock dividends by a corporation in the 35% tax bracket?

Accepted Answer

A)  $0 
B)  $5,250 
C)  $12,250 
D) $17,500 
A)  $0 
B)  $5,250 
C)  $12,250 
D) $17,500

Question 17

Which one of the following statements is typically correct for a going-concern firm?

Accepted Answer

A)  Book value of equity exceeds market value of equity. 
B)  Market value of equity exceeds book value of equity. 
C)  Book value of equity equals market value of equity. 
D) No typical relationship exists between book and market values of equity. 
A)  Book value of equity exceeds market value of equity. 
B)  Market value of equity exceeds book value of equity. 
C)  Book value of equity equals market value of equity. 
D) No typical relationship exists between book and market values of equity.

Question 18

Corporations that annually retire a set portion of their long-term debt are said to be using:

Accepted Answer

A)  indexed bonds. 
B)  sinking funds. 
C)  convertible debt. 
D) secured debt. 
A)  indexed bonds. 
B)  sinking funds. 
C)  convertible debt. 
D) secured debt.

Question 19

The issuer of mortality bonds is concerned about an unusually large number of premature deaths.

Accepted Answer

A) True 
 B)False

Question 20

A capital surplus is obtained when the selling price of new shares is greater than the par value.

Accepted Answer

A) True 
 B)False

Exam 14: Introduction to Corporate Financing

All of the following are types of innovative bonds except:

Privately placed debt must be held until maturity and cannot be resold.

Illustrate the difference between majority and cumulative voting systems using as an example a shareholder who owns 1,000 shares and an election in which three directors will be selected. Why might shareholders care about which voting system is adopted?

Which one of these statements is correct regarding U.S. firms during the period 1995-2012?

The call provision of callable bonds comes at the expense of bond holders, for it limits investors' capital gain potential.

One way that investors contribute capital to the firm is by:

Would you expect the price of a 10-year floating-rate bond to be more or less sensitive to changes in interest rates than the price of a 10-year fixed-rate bond?

What is the book value per share of equity for a firm with $1 million in net common equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares outstanding?

The system of electing a board of directors where each director is voted on separately is known as:

How much will be recorded as a firm's additional paid-in capital if the firm issues 1 million shares that have a $5 par value for $15 per share?

A company's board of directors is primarily an agent of the company's:

An efficient capital market is one in which:

Differences in classes of stock often appear in their voting rights.

If a corporation has more shares issued than outstanding, then:

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share. Which one of these correctly states the resulting change in the equity accounts?

What tax liability is created by the receipt of $50,000 in preferred stock dividends by a corporation in the 35% tax bracket?

Which one of the following statements is typically correct for a going-concern firm?

Corporations that annually retire a set portion of their long-term debt are said to be using:

The issuer of mortality bonds is concerned about an unusually large number of premature deaths.

A capital surplus is obtained when the selling price of new shares is greater than the par value.

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