Question 1

For most firms,the majority of their funding is generated internally.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following forms of debt would be likely to offer debtholders the lowest interest rate?

Accepted Answer

A)  Secured debt that is not callable. 
B)  Secured debt with a sinking fund. 
C)  Subordinated debt that is callable. 
D)  Subordinated debt with a sinking fund. 
A)  Secured debt that is not callable. 
B)  Secured debt with a sinking fund. 
C)  Subordinated debt that is callable. 
D)  Subordinated debt with a sinking fund.

Question 3

Convertible bonds resemble a combination of what two types of securities?

Accepted Answer

A)  Investment grade bonds and junk bonds 
B)  Bonds and common stock 
C)  Bonds and warrants 
D)  Bonds and preferred stock 
A)  Investment grade bonds and junk bonds 
B)  Bonds and common stock 
C)  Bonds and warrants 
D)  Bonds and preferred stock

Question 4

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

Accepted Answer

The shareholders' equity account breaks

Question 5

If a corporation has more shares issued than outstanding,then:

Accepted Answer

A)  the Board of Directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D)  unexercised stock warrants exist. 
A)  the Board of Directors is holding shares. 
B)  there are preferred shares outstanding. 
C)  the corporation has treasury stock. 
D)  unexercised stock warrants exist.

Question 6

One way that investors contribute capital to the firm is by:

Accepted Answer

A)  plowing back money into retained earnings. 
B)  paying less than par value for the stock. 
C)  receiving dividends and reinvesting them on their own. 
D)  increasing the amount of treasury stock. 
A)  plowing back money into retained earnings. 
B)  paying less than par value for the stock. 
C)  receiving dividends and reinvesting them on their own. 
D)  increasing the amount of treasury stock.

Question 7

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

Accepted Answer

Financial markets have a tendency of bei

Question 8

"Since internal funds provide the bulk of industry's needs for capital,the securities markets serve little function." Does the speaker have a point?

Accepted Answer

Capital markets provide liquidity for in

Question 9

In a situation of bankruptcy,only the funded debt will be repaid.

Accepted Answer

A) True 
 B)False

Question 10

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

Accepted Answer

A)  Interest and principal payments are tax deductible. 
B)  Interest payments are tax deductible. 
C)  Principal payments are tax deductible. 
D)  70% of interest payments are tax deductible. 
A)  Interest and principal payments are tax deductible. 
B)  Interest payments are tax deductible. 
C)  Principal payments are tax deductible. 
D)  70% of interest payments are tax deductible.

Question 11

The issued and repurchased shares are held in a company's treasury and are known as treasury stock.

Accepted Answer

A) True 
 B)False

Question 12

Dividends represent an important component of the firm's net common equity.

Accepted Answer

A) True 
 B)False

Question 13

Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

Accepted Answer

A) True 
 B)False

Question 14

A stock's par value is represented by:

Accepted Answer

A)  the maturity value of the stock. 
B)  the price at which each share is recorded. 
C)  the price at which an investor could sell the stock. 
D)  the price received by the firm when the stock was issued. 
A)  the maturity value of the stock. 
B)  the price at which each share is recorded. 
C)  the price at which an investor could sell the stock. 
D)  the price received by the firm when the stock was issued.

Question 15

When bonds are selling at par value,the bonds are known as fixed-rate bonds.

Accepted Answer

A) True 
 B)False

Question 16

The majority of an established firm's capital is generated:

Accepted Answer

A)  internally. 
B)  externally. 
C)  through issuance of new shares. 
D)  through funded debt. 
A)  internally. 
B)  externally. 
C)  through issuance of new shares. 
D)  through funded debt.

Question 17

Ray's Jams Inc.was just established with an investment of $5 million in stereo equipment.Ray expects his company to generate $800,000 a year for the next 200 years.If Ray'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 = $5.33 million; book value = $5.0 million 
D)  market value = $7.0 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 = $5.33 million; book value = $5.0 million 
D)  market value = $7.0 million; book value = $5.0 million

Question 18

How much will be recorded as a firm's additional paid-in capital if it issues 1 million shares that have a $5 par value for $15 per share?

Accepted Answer

A)  $0 
B)  $5,000,000 
C)  $10,000,000 
D)  $15,000,000 
A)  $0 
B)  $5,000,000 
C)  $10,000,000 
D)  $15,000,000

Question 19

Additional paid-in capital refers to:

Accepted Answer

A)  a firm's retained earnings. 
B)  a firm's treasury stock. 
C)  the difference between the issue price and the par value. 
D)  funds borrowed from a bank or bondholders. 
A)  a firm's retained earnings. 
B)  a firm's treasury stock. 
C)  the difference between the issue price and the par value. 
D)  funds borrowed from a bank or bondholders.

Question 20

Discuss what effect you would expect the following debt provisions to have on the yield that corporations must offer investors: funded (versus unfunded)debt,sinking fund,call provision,subordinated debt,secured debt.

Accepted Answer

In times of a positively sloped yield cu

Exam 14: Introduction to Corporate Financing

For most firms,the majority of their funding is generated internally.

Which of the following forms of debt would be likely to offer debtholders the lowest interest rate?

Convertible bonds resemble a combination of what two types of securities?

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

If a corporation has more shares issued than outstanding,then:

One way that investors contribute capital to the firm is by:

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

"Since internal funds provide the bulk of industry's needs for capital,the securities markets serve little function." Does the speaker have a point?

In a situation of bankruptcy,only the funded debt will be repaid.

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

The issued and repurchased shares are held in a company's treasury and are known as treasury stock.

Dividends represent an important component of the firm's net common equity.

Ford Motor Company and Google have issued two classes of shares with different voting rights to allow their firms to obtain fresh capital without giving up their management's controlling rights.

A stock's par value is represented by:

When bonds are selling at par value,the bonds are known as fixed-rate bonds.

The majority of an established firm's capital is generated:

Ray's Jams Inc.was just established with an investment of $5 million in stereo equipment.Ray expects his company to generate $800,000 a year for the next 200 years.If Ray's cost of capital is 15%,find the market value and book value of his company.

How much will be recorded as a firm's additional paid-in capital if it issues 1 million shares that have a $5 par value for $15 per share?

Additional paid-in capital refers to:

Discuss what effect you would expect the following debt provisions to have on the yield that corporations must offer investors: funded (versus unfunded)debt,sinking fund,call provision,subordinated debt,secured debt.

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