Question 1

To state that net equity issues have been negative indicates that:

Accepted Answer

A)  more shares have been repurchased than newly issued. 
B)  new shares have been sold at less than par value. 
C)  issuing stock has been a negative NPV transaction. 
D) dividend payments have exceeded net income. 
A)  more shares have been repurchased than newly issued. 
B)  new shares have been sold at less than par value. 
C)  issuing stock has been a negative NPV transaction. 
D) dividend payments have exceeded net income.

Question 2

If an incompetent management team controls a large block of votes, it may use these votes to stay in control.

Accepted Answer

A) True 
 B)False

Question 3

Compare the after-tax rates of return for a corporate investor from the following two investments: A 15-year corporate bond that sells for par and offers a coupon rate of 11% versus an investment in preferred stock that sells for $40 per share and pays a $3.60 dividend. The corporation has a 35% tax rate.

Accepted Answer

Bond after-tax yield = 11%(1 -

Question 4

Eurobonds are long-term, corporate liabilities that:

Accepted Answer

A)  are issued by European firms. 
B)  must be held inside the United States by foreigners. 
C)  are marketed in many countries. 
D) are repaid in U.S. dollars. 
A)  are issued by European firms. 
B)  must be held inside the United States by foreigners. 
C)  are marketed in many countries. 
D) are repaid in U.S. dollars.

Question 5

Which one of the following equity concepts would you expect to be least important to a financial analyst?

Accepted Answer

A)  Par value per share 
B)  Additional paid-in capital 
C)  Retained earnings 
D) Net common equity 
A)  Par value per share 
B)  Additional paid-in capital 
C)  Retained earnings 
D) Net common equity

Question 6

Corporations generally need shareholder approval to do which one of the following?

Accepted Answer

A)  Select a new CEO 
B)  Increase the number of authorized shares 
C)  Purchase Treasury stock 
D) Pay a regular dividend 
A)  Select a new CEO 
B)  Increase the number of authorized shares 
C)  Purchase Treasury stock 
D) Pay a regular dividend

Question 7

Jay's Jams Inc. was just established with an investment of $5 million in stereo equipment. Jay expects his company to generate $800,000 a year for the next 10 years, followed by $1 million a year for the following 10 years. If Jay's cost of capital is 15%, find the market value and book value of his company.

Accepted Answer

A)  Market value = $9.0 million; book value = $5.0 million 
B)  Market value = $5.0 million; book value = $5.3 million 
C)  Market value = $5.3 million; book value = $5.0 million 
D) Market value = $18.0 million; book value = $5.0 million 
A)  Market value = $9.0 million; book value = $5.0 million 
B)  Market value = $5.0 million; book value = $5.3 million 
C)  Market value = $5.3 million; book value = $5.0 million 
D) Market value = $18.0 million; book value = $5.0 million

Question 8

A convertible bond generally has a higher market value than a comparable non-convertible bond.

Accepted Answer

A) True 
 B)False

Question 9

What does it mean to say that financing is a zero-NPV transaction?

Accepted Answer

Financial markets have a tendency to be

Question 10

Why should managers assume they will receive a fair price for any new shares that their firm issues?

Accepted Answer

A)  All new shares must sell at par value. 
B)  All new shares will sell as positive NPV investments. 
C)  Financial markets are highly competitive. 
D) New share prices are highly regulated. 
A)  All new shares must sell at par value. 
B)  All new shares will sell as positive NPV investments. 
C)  Financial markets are highly competitive. 
D) New share prices are highly regulated.

Question 11

To state that financing at current market terms is a zero-NPV transaction indicates that:

Accepted Answer

A)  firms should avoid these methods of financing. 
B)  there is no cost involved in the financing. 
C)  the market has not set financing terms correctly. 
D) there are no "bargains" when financing at current terms. 
A)  firms should avoid these methods of financing. 
B)  there is no cost involved in the financing. 
C)  the market has not set financing terms correctly. 
D) there are no "bargains" when financing at current terms.

Question 12

If shareholders do not like the policies that management pursues, their easiest solution is to vote in a different board of directors.

Accepted Answer

A) True 
 B)False

Question 13

Suppose Heinz is considering two issues of 20-year maturity coupon bonds; one issue will be callable, the other will not be callable. For a given coupon rate, will the callable or noncallable bond sell at the higher price? If the bonds are both to be sold to the public at face value, which bond must have the higher coupon rate?

Accepted Answer

The callable bond will sell at a lower p

Question 14

A warrant grants its holder the right to do which one of these prior to a specified date?

Accepted Answer

A)  Convert debt into a specified number of shares 
B)  Sell common shares at a predetermined price 
C)  Exchange stock for bonds at a specified price 
D) Purchase shares at a predetermined price 
A)  Convert debt into a specified number of shares 
B)  Sell common shares at a predetermined price 
C)  Exchange stock for bonds at a specified price 
D) Purchase shares at a predetermined price

Question 15

What information is contained in the shareholders' equity account in the firm's financial statements?

Accepted Answer

The shareholders' equity account breaks

Question 16

Suppose a firm needs fresh capital, but its management does not want to give up its controlling interest. The existing shares could be labeled Class A, and then Class B shares with limited voting rights could be issued to outside investors.

Accepted Answer

A) True 
 B)False

Question 17

With floating-rate preferred stock, dividends are directly linked to interest rates.

Accepted Answer

A) True 
 B)False

Question 18

Which one of these terms applies to the bundling of a group of loans with the subsequent sale of the cash flows from those loans?

Accepted Answer

A)  Convertible bond 
B)  Warrants 
C)  Asset-backed bond 
D) Preferred bond 
A)  Convertible bond 
B)  Warrants 
C)  Asset-backed bond 
D) Preferred bond

Question 19

Bond issuers can appeal to inflation-conscious investors by issuing floating-rate bonds.

Accepted Answer

A) True 
 B)False

Question 20

The purpose of a sinking fund is to:

Accepted Answer

A)  reduce the par value of stock over time. 
B)  take advantage of the tax break on preferred stock. 
C)  periodically retire debt prior to final maturity. 
D) allow risky corporations to avoid bankruptcy. 
A)  reduce the par value of stock over time. 
B)  take advantage of the tax break on preferred stock. 
C)  periodically retire debt prior to final maturity. 
D) allow risky corporations to avoid bankruptcy.

Exam 14: Introduction to Corporate Financing

To state that net equity issues have been negative indicates that:

If an incompetent management team controls a large block of votes, it may use these votes to stay in control.

Eurobonds are long-term, corporate liabilities that:

Which one of the following equity concepts would you expect to be least important to a financial analyst?

Corporations generally need shareholder approval to do which one of the following?

A convertible bond generally has a higher market value than a comparable non-convertible bond.

What does it mean to say that financing is a zero-NPV transaction?

Why should managers assume they will receive a fair price for any new shares that their firm issues?

To state that financing at current market terms is a zero-NPV transaction indicates that:

If shareholders do not like the policies that management pursues, their easiest solution is to vote in a different board of directors.

A warrant grants its holder the right to do which one of these prior to a specified date?

What information is contained in the shareholders' equity account in the firm's financial statements?

Suppose a firm needs fresh capital, but its management does not want to give up its controlling interest. The existing shares could be labeled Class A, and then Class B shares with limited voting rights could be issued to outside investors.

With floating-rate preferred stock, dividends are directly linked to interest rates.

Which one of these terms applies to the bundling of a group of loans with the subsequent sale of the cash flows from those loans?

Bond issuers can appeal to inflation-conscious investors by issuing floating-rate bonds.

The purpose of a sinking fund is to:

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