Question 1

Which of the following is least likely to contribute to the positive-NPV investments found in product markets?

Accepted Answer

A)  Patented-production processes 
B)  Positive-NPV financing strategies 
C)  Brand-name product recognition 
D)  Lack of competition 
A)  Patented-production processes 
B)  Positive-NPV financing strategies 
C)  Brand-name product recognition 
D)  Lack of competition

Question 2

The price at which new shares are issued is referred to as the par value of the stock.

Accepted Answer

A) True 
 B)False

Question 3

List four protective covenants that you might be interested in as a prospective bondholder.Briefly describe why these would be realistic bondholder concerns.

Accepted Answer

a.Limit either dollar value of total deb

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct about a corporation that borrows from its bank at "Prime plus 1 percent"? The interest rate:

Accepted Answer

A)  is set at a level of the prime rate at initiation of the loan, plus 1 percent. 
B)  can fluctuate up to 1% upward over the life of the loan. 
C)  can be changed upward but not downward over the life of the loan. 
D)  can be changed upward or downward in accordance with prime rate changes over the life of the loan. 
A)  is set at a level of the prime rate at initiation of the loan, plus 1 percent. 
B)  can fluctuate up to 1% upward over the life of the loan. 
C)  can be changed upward but not downward over the life of the loan. 
D)  can be changed upward or downward in accordance with prime rate changes over the life of the loan.

Question 6

A company is about to issue new shares of stock.If the par value per share is $4,the price of the new shares will most likely be:

Accepted Answer

A)  less than $4. 
B)  equal to $4. 
C)  greater than $4. 
D)  equal to the capital surplus. 
A)  less than $4. 
B)  equal to $4. 
C)  greater than $4. 
D)  equal to the capital surplus.

Question 7

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

Accepted Answer

A)  $17,500 
B)  $32,500 
C)  $50,000 
D)  $76,923 
A)  $17,500 
B)  $32,500 
C)  $50,000 
D)  $76,923

Question 8

If an idle or incompetent management has a large block of votes,it may use these votes to stay in control.

Accepted Answer

A) True 
 B)False

Question 9

Discuss why more firms are turning to internally generated funds to finance new projects.

Accepted Answer

Many firms have a long-term goal of sust

Question 10

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 11

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 $55 per share?

Accepted Answer

A)  All the bondholders will choose to convert. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D)  Some of the bondholders will choose to convert. 
A)  All the bondholders will choose to convert. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D)  Some of the bondholders will choose to convert.

Question 12

A firm's internally generated funds are calculated by:

Accepted Answer

A)  subtracting depreciation from net income. 
B)  adding depreciation to net income. 
C)  adding dividends to net income. 
D)  subtracting dividends from net income plus depreciation. 
A)  subtracting depreciation from net income. 
B)  adding depreciation to net income. 
C)  adding dividends to net income. 
D)  subtracting dividends from net income plus depreciation.

Question 13

One common reason for issuing two distinct classes of common stock is to:

Accepted Answer

A)  sell different classes to increase profits. 
B)  allow one stock to increase in price while the other class declines. 
C)  restrict voting privileges from some shareholders. 
D)  conserve cash by offering dividends to only one class of stockholders. 
A)  sell different classes to increase profits. 
B)  allow one stock to increase in price while the other class declines. 
C)  restrict voting privileges from some shareholders. 
D)  conserve cash by offering dividends to only one class of stockholders.

Question 14

One way in which financing decisions are easier than investment decisions is:

Accepted Answer

A)  it is more difficult to lose money through foolish financing decisions. 
B)  financial markets are not competitive due to regulations. 
C)  it is easier to make a lot of money through smart financing decisions. 
D)  all of these 
A)  it is more difficult to lose money through foolish financing decisions. 
B)  financial markets are not competitive due to regulations. 
C)  it is easier to make a lot of money through smart financing decisions. 
D)  all of these

Question 15

When a firm issues 50,000 shares with a par value of $5 for $22 per share,additional paid-in capital will:

Accepted Answer

A)  decrease by $250,000. 
B)  increase by $250,000. 
C)  increase by $850,000. 
D)  increase by $1,100,000. 
A)  decrease by $250,000. 
B)  increase by $250,000. 
C)  increase by $850,000. 
D)  increase by $1,100,000.

Question 16

When securities are priced fairly,then financing at current market rates is a positive NPV transaction.

Accepted Answer

A) True 
 B)False

Question 17

Preferred stock of financially strong firms sometimes sells at lower yields than the bonds of those firms.For weaker firms,the preferred stock has a higher yield.What might explain this pattern?

Accepted Answer

In general,the fact that preferred stock

Question 18

Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend?

Accepted Answer

A)  The stock is preferred by approximately .17%. 
B)  The stock is preferred by approximately .80%. 
C)  The bond is preferred by approximately 1.30%. 
D)  The after-tax yields are identical on each. 
A)  The stock is preferred by approximately .17%. 
B)  The stock is preferred by approximately .80%. 
C)  The bond is preferred by approximately 1.30%. 
D)  The after-tax yields are identical on each.

Question 19

Which of the following is a source of cash for a firm?

Accepted Answer

A)  Retained earnings 
B)  Issuing new debt 
C)  Issuing new equity 
D)  All of these 
A)  Retained earnings 
B)  Issuing new debt 
C)  Issuing new equity 
D)  All of these

Question 20

An efficient capital market is one in which:

Accepted Answer

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

Exam 14: Introduction to Corporate Financing

Which of the following is least likely to contribute to the positive-NPV investments found in product markets?

The price at which new shares are issued is referred to as the par value of the stock.

List four protective covenants that you might be interested in as a prospective bondholder.Briefly describe why these would be realistic bondholder concerns.

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

Which of the following statements is correct about a corporation that borrows from its bank at "Prime plus 1 percent"? The interest rate:

A company is about to issue new shares of stock.If the par value per share is $4,the price of the new shares will most likely be:

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

If an idle or incompetent management has a large block of votes,it may use these votes to stay in control.

Discuss why more firms are turning to internally generated funds to finance new projects.

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 $55 per share?

A firm's internally generated funds are calculated by:

One common reason for issuing two distinct classes of common stock is to:

One way in which financing decisions are easier than investment decisions is:

When a firm issues 50,000 shares with a par value of $5 for $22 per share,additional paid-in capital will:

When securities are priced fairly,then financing at current market rates is a positive NPV transaction.

Preferred stock of financially strong firms sometimes sells at lower yields than the bonds of those firms.For weaker firms,the preferred stock has a higher yield.What might explain this pattern?

Which of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend?

Which of the following is a source of cash for a firm?

An efficient capital market is one in which:

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