Question 1

In proxy contests, outsiders compete with the firm's existing management and directors for control of the corporation.

Accepted Answer

A) True 
 B)False

Question 2

How would a convertible bondholder decide whether to exercise his rights of exchange?

Accepted Answer

The number of shares of common stock tha

Question 3

Firms tend to issue more debt when internal funds are low.

Accepted Answer

A) True 
 B)False

Question 4

A warrant has an exercise price of $40, and the current stock price is $38. An investor holding this option will purchase the stock only if the:

Accepted Answer

A)  dividend yield on the stock exceeds 10%. 
B)  stock price falls below $38. 
C)  stock price rises above $40. 
D) stock price falls to $20 or below. 
A)  dividend yield on the stock exceeds 10%. 
B)  stock price falls below $38. 
C)  stock price rises above $40. 
D) stock price falls to $20 or below.

Question 5

Earnings this year for Plasti-tech Inc. were $200,000. It decided to plow back $60,000 and recorded $20,000 of depreciation. Plasti-tech's internally generated funds are:

Accepted Answer

A)  $40,000. 
B)  $60,000. 
C)  $80,000. 
D) $140,000. 
A)  $40,000. 
B)  $60,000. 
C)  $80,000. 
D) $140,000.

Question 6

A proxy contest is typically one in which:

Accepted Answer

A)  the Board attempts to gain control from the shareholders. 
B)  management attempts to gain control from the Directors. 
C)  outsiders attempt to gain control from management. 
D) the Board attempts to gain control from the Directors. 
A)  the Board attempts to gain control from the shareholders. 
B)  management attempts to gain control from the Directors. 
C)  outsiders attempt to gain control from management. 
D) the Board attempts to gain control from the Directors.

Question 7

Bonds with the callable feature tend to sell at lower prices than bonds without such a feature.

Accepted Answer

A) True 
 B)False

Question 8

The majority of an established firm's capital is generated:

Accepted Answer

A)  internally. 
B)  externally. 
C)  through issuance of new shares. 
D) through funded debt. 
A)  internally. 
B)  externally. 
C)  through issuance of new shares. 
D) through funded debt.

Question 9

If you are concerned with maintaining the market value of your preferred stock, you should purchase floating-rate preferred shares.

Accepted Answer

A) True 
 B)False

Question 10

Preferred stockholders generally:

Accepted Answer

A)  have full voting rights. 
B)  receive a fixed dividend. 
C)  have priority over debt holders if the company goes bankrupt. 
D) convert to bond holders. 
A)  have full voting rights. 
B)  receive a fixed dividend. 
C)  have priority over debt holders if the company goes bankrupt. 
D) convert to bond holders.

Question 11

If financial markets were not efficient, it would be more likely for firms to:

Accepted Answer

A)  finance investments in a zero-NPV transaction. 
B)  finance investments in a positive NPV transaction. 
C)  totally avoid the need for external financing. 
D) finance investments in a negative NPV transaction. 
A)  finance investments in a zero-NPV transaction. 
B)  finance investments in a positive NPV transaction. 
C)  totally avoid the need for external financing. 
D) finance investments in a negative NPV transaction.

Question 12

Which one of the following statements about floating-rate preferred stock is correct?

Accepted Answer

A)  Its dividends increase as interest rates increase. 
B)  Its market price increases at a set rate annually. 
C)  It is the only stock issued without a par value. 
D) Its dividends are deductible for tax purposes by the paying corporation. 
A)  Its dividends increase as interest rates increase. 
B)  Its market price increases at a set rate annually. 
C)  It is the only stock issued without a par value. 
D) Its dividends are deductible for tax purposes by the paying corporation.

Question 13

Bonds that have been sold only to a limited number of institutional investors are considered:

Accepted Answer

A)  secured bonds. 
B)  convertible bonds. 
C)  private placements. 
D) indexed bonds. 
A)  secured bonds. 
B)  convertible bonds. 
C)  private placements. 
D) indexed bonds.

Question 14

Which one of the following statements is correct about a floating interest rate loan if the interest rate is defined as "Prime plus 1 percent"? The interest rate:

Accepted Answer

A)  is set to vary at a rate equal to the prime rate plus 1 percent. 
B)  can fluctuate up to a maximum of 1% above the current prime rate over the life of the loan. 
C)  will be fixed at the current prime rate plus 1 percent. 
D) will vary with the prime rate but changes will only occur in 1 percent intervals. 
A)  is set to vary at a rate equal to the prime rate plus 1 percent. 
B)  can fluctuate up to a maximum of 1% above the current prime rate over the life of the loan. 
C)  will be fixed at the current prime rate plus 1 percent. 
D) will vary with the prime rate but changes will only occur in 1 percent intervals.

Question 15

Additional paid-in capital refers to:

Accepted Answer

A)  a firm's retained earnings. 
B)  a firm's treasury stock. 
C)  the difference between the issue price and the par value. 
D) funds borrowed from a bank or bondholders. 
A)  a firm's retained earnings. 
B)  a firm's treasury stock. 
C)  the difference between the issue price and the par value. 
D) funds borrowed from a bank or bondholders.

Question 16

How does a call provision affect a bond's market value?

Accepted Answer

Debt that has a call provision may offer

Question 17

Callable bonds may be repurchased by the issuing firm before maturity at the specified call price.

Accepted Answer

A) True 
 B)False

Question 18

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 $45 per share?

Accepted Answer

A)  The bondholders will choose to convert. 
B)  The stock will go up to $50 per share. 
C)  The bond's price will go down to $900. 
D) The bond price is unaffected by the stock price. 
A)  The bondholders will choose to convert. 
B)  The stock will go up to $50 per share. 
C)  The bond's price will go down to $900. 
D) The bond price is unaffected by the stock price.

Question 19

"Since internal funds provide the bulk of industry's needs for capital, the securities markets serve little function." Does the speaker have a point?

Accepted Answer

Capital markets provide liquidity for in

Question 20

A corporation cannot default on funded debt.

Accepted Answer

A) True 
 B)False

Exam 14: Introduction to Corporate Financing

In proxy contests, outsiders compete with the firm's existing management and directors for control of the corporation.

How would a convertible bondholder decide whether to exercise his rights of exchange?

Firms tend to issue more debt when internal funds are low.

A warrant has an exercise price of $40, and the current stock price is $38. An investor holding this option will purchase the stock only if the:

Earnings this year for Plasti-tech Inc. were $200,000. It decided to plow back $60,000 and recorded $20,000 of depreciation. Plasti-tech's internally generated funds are:

A proxy contest is typically one in which:

Bonds with the callable feature tend to sell at lower prices than bonds without such a feature.

The majority of an established firm's capital is generated:

If you are concerned with maintaining the market value of your preferred stock, you should purchase floating-rate preferred shares.

Preferred stockholders generally:

If financial markets were not efficient, it would be more likely for firms to:

Which one of the following statements about floating-rate preferred stock is correct?

Bonds that have been sold only to a limited number of institutional investors are considered:

Which one of the following statements is correct about a floating interest rate loan if the interest rate is defined as "Prime plus 1 percent"? The interest rate:

Additional paid-in capital refers to:

How does a call provision affect a bond's market value?

Callable bonds may be repurchased by the issuing firm before maturity at the specified call price.

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 $45 per share?

"Since internal funds provide the bulk of industry's needs for capital, the securities markets serve little function." Does the speaker have a point?

A corporation cannot default on funded debt.

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