Question 1

Corporations are less likely to repurchase callable bonds when market interest rates have risen.

Accepted Answer

A) True 
 B)False  True

Question 2

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  True

Question 3

If 100 million shares of common stock are issued with a par value of $2 and additional paid-in capital of $800 million,the total par value of the issued shares is:

Accepted Answer

A)  $200 million. 
B)  $600 million. 
C)  $800 million. 
D)  $1 billion. 
A)  $200 million. 
B)  $600 million. 
C)  $800 million. 
D)  $1 billion. A

Question 4

Junk bonds represent debt that was issued to:

Accepted Answer

A)  finance the acquisition of used manufacturing equipment. 
B)  firms in countries with high rates of inflation. 
C)  offer higher yields and less security than other debt. 
D)  firms that have defaulted on their dividend payments. 
A)  finance the acquisition of used manufacturing equipment. 
B)  firms in countries with high rates of inflation. 
C)  offer higher yields and less security than other debt. 
D)  firms that have defaulted on their dividend payments.

Question 5

Which of the following is true regarding convertible securities?

Accepted Answer

A)  A convertible bondholder is forced to convert at a specific time. 
B)  The convertible option on a bond gives the owner the right to buy shares from a company at a set price. 
C)  The owner of a warrant option will benefit if the firm's stock does poorly. 
D)  The owner of a warrant option will benefit if the firm's stock does well. 
A)  A convertible bondholder is forced to convert at a specific time. 
B)  The convertible option on a bond gives the owner the right to buy shares from a company at a set price. 
C)  The owner of a warrant option will benefit if the firm's stock does poorly. 
D)  The owner of a warrant option will benefit if the firm's stock does well.

Question 6

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

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

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 9

Which 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 10

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

Accepted Answer

A)  finance investments in a zero-NPV transaction. 
B)  finance investments in a positive NPV transaction. 
C)  avoid the need for financing investments. 
D)  find desirable securities for financing investments. 
A)  finance investments in a zero-NPV transaction. 
B)  finance investments in a positive NPV transaction. 
C)  avoid the need for financing investments. 
D)  find desirable securities for financing investments.

Question 11

When firms retain cash,they are generating funds internally by increasing shareholder investment.

Accepted Answer

A) True 
 B)False

Question 12

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:

Accepted Answer

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

Question 13

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 14

Discuss generally the idea of bond ratings,including the difference between investment grade and junk bonds.

Accepted Answer

Corporate bonds are rated for safety of

Question 15

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 16

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 maturity fixed-rate bond?

Accepted Answer

Because the coupon on floating-rate debt

Question 17

When corporations default on their debt:

Accepted Answer

A)  bondholders may receive the firm's assets. 
B)  bondholders will suffer a loss. 
C)  the Board of Directors is liable for the payments. 
D)  the corporation is forced to default on its stock also. 
A)  bondholders may receive the firm's assets. 
B)  bondholders will suffer a loss. 
C)  the Board of Directors is liable for the payments. 
D)  the corporation is forced to default on its stock also.

Question 18

Historically,internally generated cash covers less than half of a firm's capital requirements.

Accepted Answer

A) True 
 B)False

Question 19

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 $40.00 per share and pays a $3.60 dividend.The corporation has a 35% tax rate.

Accepted Answer

The answer of Compare the after-tax rates of return for...

Question 20

When new shares are sold at a price greater than par value,the excess over par is recorded as:

Accepted Answer

A)  capital surplus. 
B)  retained earnings. 
C)  treasury stock. 
D)  authorized capital. 
A)  capital surplus. 
B)  retained earnings. 
C)  treasury stock. 
D)  authorized capital.

Exam 14: Introduction to Corporate Financing

Corporations are less likely to repurchase callable bonds when market interest rates have risen.

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.

If 100 million shares of common stock are issued with a par value of $2 and additional paid-in capital of $800 million,the total par value of the issued shares is:

Junk bonds represent debt that was issued to:

Which of the following is true regarding convertible securities?

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

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

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

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

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

When firms retain cash,they are generating funds internally by increasing shareholder investment.

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:

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

Discuss generally the idea of bond ratings,including the difference between investment grade and junk bonds.

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

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 maturity fixed-rate bond?

When corporations default on their debt:

Historically,internally generated cash covers less than half of a firm's capital requirements.

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 $40.00 per share and pays a $3.60 dividend.The corporation has a 35% tax rate.

When new shares are sold at a price greater than par value,the excess over par is recorded as:

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters