Question 1

Which of the following balance-sheet accounts will not be affected when there is a reduction in the number of outstanding shares?

Accepted Answer

A)  Retained earnings 
B)  Additional paid-in capital 
C)  Common shares (valued at par value) 
D)  Treasury shares at cost 
A)  Retained earnings 
B)  Additional paid-in capital 
C)  Common shares (valued at par value) 
D)  Treasury shares at cost

Question 2

All of the following are true of retained earnings except:

Accepted Answer

A)  it is the difference between paid-in capital and the total dividends paid. 
B)  it represents the amount of new capital shareholders indirectly contribute. 
C)  it is equal to earnings times the quantity one minus the payout ratio. 
D)  it is the amount of earnings plowed back into the firm. 
A)  it is the difference between paid-in capital and the total dividends paid. 
B)  it represents the amount of new capital shareholders indirectly contribute. 
C)  it is equal to earnings times the quantity one minus the payout ratio. 
D)  it is the amount of earnings plowed back into the firm.

Question 3

With respect to bonds,when interest rates increase typically:

Accepted Answer

A)  the coupon rate also increases. 
B)  the coupon rate remains unchanged. 
C)  the price of the bond rises. 
D)  the price of the bond remains unchanged. 
A)  the coupon rate also increases. 
B)  the coupon rate remains unchanged. 
C)  the price of the bond rises. 
D)  the price of the bond remains unchanged.

Question 4

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 5

Subordinated debt is an example of short-term debt for a firm.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is the holder of a warrant allowed to do 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 7

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.

Question 8

Dividends are deductible for purposes of calculating a corporation's taxable income.

Accepted Answer

A) True 
 B)False

Question 9

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 $2.40 dividend.The corporation has a 35% tax rate.

Accepted Answer

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

Question 10

Holders of callable bonds know that the company will wish to buy the issue back if interest rates fall,and therefore the price of the bond will not rise above the call price.

Accepted Answer

A) True 
 B)False

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)  The bondholder will lose $100. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D)  The bondholder will choose to convert. 
A)  The bondholder will lose $100. 
B)  The stock will go down to $50 per share. 
C)  The bond's price will go down to $900. 
D)  The bondholder will choose to convert.

Question 12

The price at which new shares are sold to investors almost always exceeds par value.The difference is entered into the company's accounts as additional paid-in capital,or capital surplus.

Accepted Answer

A) True 
 B)False

Question 13

A eurobond (a bond that is sold internationally)is always denominated in euro.

Accepted Answer

A) True 
 B)False

Question 14

The true value of a security is:

Accepted Answer

A)  the value of that security at some future date. 
B)  the sum of all future dividends. 
C)  the amount that a fundamental analyst will pay. 
D)  the price that incorporates all currently available information. 
A)  the value of that security at some future date. 
B)  the sum of all future dividends. 
C)  the amount that a fundamental analyst will pay. 
D)  the price that incorporates all currently available information.

Question 15

What tax liability is created by a corporation in the 35% tax bracket that receives $50,000 in preferred stock dividends?

Accepted Answer

A)  $0 
B)  $5,250 
C)  $12,250 
D)  $17,500 
A)  $0 
B)  $5,250 
C)  $12,250 
D)  $17,500

Question 16

A corporation cannot default on debt that is funded.

Accepted Answer

A) True 
 B)False

Question 17

Show the capital accounts at the end of the first year of operation for a firm that,at the beginning of the year,issued 50,000 shares of $1.50 par value common stock for $15 per share,repurchased 5,000 shares during the year at $20 per share,and paid out (at the end of the year)40% of earnings as dividends with a 50 cent per share dividend.

Accepted Answer

The answer of Show the capital accounts at the end...

Question 18

Differences in classes of stock often appear in their right to vote.

Accepted Answer

A) True 
 B)False

Question 19

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 20

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

Accepted Answer

A) True 
 B)False

Exam 14: Introduction to Corporate Financing

Which of the following balance-sheet accounts will not be affected when there is a reduction in the number of outstanding shares?

All of the following are true of retained earnings except:

With respect to bonds,when interest rates increase typically:

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

Subordinated debt is an example of short-term debt for a firm.

Which of the following is the holder of a warrant allowed to do prior to a specified date?

The purpose of a sinking fund is to:

Dividends are deductible for purposes of calculating a corporation's taxable income.

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 $2.40 dividend.The corporation has a 35% tax rate.

Holders of callable bonds know that the company will wish to buy the issue back if interest rates fall,and therefore the price of the bond will not rise above the 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 $55 per share?

The price at which new shares are sold to investors almost always exceeds par value.The difference is entered into the company's accounts as additional paid-in capital,or capital surplus.

A eurobond (a bond that is sold internationally)is always denominated in euro.

The true value of a security is:

What tax liability is created by a corporation in the 35% tax bracket that receives $50,000 in preferred stock dividends?

A corporation cannot default on debt that is funded.

Differences in classes of stock often appear in their right to vote.

A proxy contest is typically one in which:

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

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