Question 1

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 2

Funded debt refers to those liabilities that:

Accepted Answer

A)  have established a sinking fund for repayment. 
B)  are not callable at the option of the firm. 
C)  are secured by specific collateral. 
D)  have a maturity of more than one year remaining. 
A)  have established a sinking fund for repayment. 
B)  are not callable at the option of the firm. 
C)  are secured by specific collateral. 
D)  have a maturity of more than one year remaining.

Question 3

Since preferred stock dividends are not deductible for tax purposes,few corporations own preferred stock.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is correct concerning stock dividends?

Accepted Answer

A)  Common stock dividends cannot be paid if preferred stock dividends are in arrears. 
B)  Preferred stock dividends cannot be paid if common stock dividends are in arrears. 
C)  Common and preferred dividends must be paid simultaneously. 
D)  No stock dividends can be paid if the firm has no cash. 
A)  Common stock dividends cannot be paid if preferred stock dividends are in arrears. 
B)  Preferred stock dividends cannot be paid if common stock dividends are in arrears. 
C)  Common and preferred dividends must be paid simultaneously. 
D)  No stock dividends can be paid if the firm has no cash.

Question 5

Which of the following would be considered a eurodollar deposit?

Accepted Answer

A)  Dollars deposited in a U.S. bank 
B)  Yen deposited in a European bank 
C)  Dollars deposited in a Japanese bank 
D)  Marks deposited in a German bank 
A)  Dollars deposited in a U.S. bank 
B)  Yen deposited in a European bank 
C)  Dollars deposited in a Japanese bank 
D)  Marks deposited in a German bank

Question 6

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 7

A corporation's net worth is composed of the:

Accepted Answer

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

Question 8

Typically,the book debt ratio exceeds the market debt ratio for the nonfinancial corporate sector.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

The number of shares of common stock tha

Question 12

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 13

Suppose Heinz is considering two issues of 20-year maturity coupon bonds; one issue will be callable,the other not.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

Which 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 15

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting.How many votes did the shareholder cast for Director 'A' if four directors are to be elected and the maximum number of votes were cast for 'A'?

Accepted Answer

A)  25 
B)  100 
C)  200 
D)  400 
A)  25 
B)  100 
C)  200 
D)  400

Question 16

Secured debt is debt that:

Accepted Answer

A)  carries a fixed interest rate. 
B)  is held by a trustee until repayment. 
C)  has more than one year until maturity. 
D)  has specific collateral backing it. 
A)  carries a fixed interest rate. 
B)  is held by a trustee until repayment. 
C)  has more than one year until maturity. 
D)  has specific collateral backing it.

Question 17

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 share

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

What is the net value of common equity for a firm with 3 million shares issued,1 million shares outstanding,$4 million of retained earnings,$2 million of treasury stock at cost,$1 million in additional paid-in capital,and a $1 par value per share?

Accepted Answer

A)  $4 million 
B)  $6 million 
C)  $8 million 
D)  $10 million 
A)  $4 million 
B)  $6 million 
C)  $8 million 
D)  $10 million

Question 20

Which of the following statements is incorrect?

Accepted Answer

A)  Companies may take advantage of structural changes (e.g., Marriott) to evade the constraints of protective covenants. 
B)  Bonds with protective covenants sell at a higher price than otherwise equivalent bonds without such protection for their investors. 
C)  Protective covenants are offered for the benefit of common stockholders. 
D)  Protective covenants are offered for the benefit of bondholders. 
A)  Companies may take advantage of structural changes (e.g., Marriott) to evade the constraints of protective covenants. 
B)  Bonds with protective covenants sell at a higher price than otherwise equivalent bonds without such protection for their investors. 
C)  Protective covenants are offered for the benefit of common stockholders. 
D)  Protective covenants are offered for the benefit of bondholders.

Exam 14: Introduction to Corporate Financing

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

Funded debt refers to those liabilities that:

Since preferred stock dividends are not deductible for tax purposes,few corporations own preferred stock.

Which of the following statements is correct concerning stock dividends?

Which of the following would be considered a eurodollar deposit?

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 corporation's net worth is composed of the:

Typically,the book debt ratio exceeds the market debt ratio for the nonfinancial corporate sector.

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

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

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

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

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

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting.How many votes did the shareholder cast for Director 'A' if four directors are to be elected and the maximum number of votes were cast for 'A'?

Secured debt is debt that:

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?

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

What is the net value of common equity for a firm with 3 million shares issued,1 million shares outstanding,$4 million of retained earnings,$2 million of treasury stock at cost,$1 million in additional paid-in capital,and a $1 par value per share?

Which of the following statements is incorrect?

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