Question 1

An increasing proportion of shares in the U.S. are owned by

Accepted Answer

A) individual investors. 
B) corporations (Treasury stock). 
C) institutions. 
D) governments. 
A) individual investors. 
B) corporations (Treasury stock). 
C) institutions. 
D) governments.

Question 2

A corporate investor of preferred stock receiving a before-tax preferred yield of 8.5%, and having a corporate tax rate of 30%, would receive an after-tax preferred yield of approximately _____. Assume the tax rate on dividends is 15%.

Accepted Answer

A) 10.2% 
B) 7.7% 
C) 8.1% 
D) 9.3% 
A) 10.2% 
B) 7.7% 
C) 8.1% 
D) 9.3%

Question 3

Coase Corp. has 10,000,000 outstanding shares. There are 11 directors on the firm's board. The Becker family owns 2,300,000 shares of Coase Corp. How many directors can the Becker family be assured of electing by themselves if Coase Corp. uses majority voting?

Accepted Answer

A) Zero 
B) One 
C) Two 
D) Three 
A) Zero 
B) One 
C) Two 
D) Three

Question 4

Under normal operating conditions, the board of directors is elected by

Accepted Answer

A) the common stockholders. 
B) the preferred stockholders. 
C) the bondholders. 
D) Two of the other answer choices 
A) the common stockholders. 
B) the preferred stockholders. 
C) the bondholders. 
D) Two of the other answer choices

Question 5

Stock classes may differ in both voting rights and dividend rights.

Accepted Answer

A) True 
 B)False

Question 6

Participating preferred stock may receive an extra dividend in a particularly good year when earnings are above a stated level.

Accepted Answer

A) True 
 B)False

Question 7

The floating rate feature on preferred stock allows the shareholders

Accepted Answer

A) to receive more dividends than the quoted yield when the firm enjoys a good year. 
B) to pay lower taxes when the dividend yield increases. 
C) to receive dividends that the corporation did not pay in previous years. 
D) to receive a higher or lower dividend yield depending on current competitive market conditions. 
A) to receive more dividends than the quoted yield when the firm enjoys a good year. 
B) to pay lower taxes when the dividend yield increases. 
C) to receive dividends that the corporation did not pay in previous years. 
D) to receive a higher or lower dividend yield depending on current competitive market conditions.

Question 8

Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.

Accepted Answer

A) True 
 B)False

Question 9

Under majority voting, it is easier for minority stockholders to elect some directors to the board.

Accepted Answer

A) True 
 B)False

Question 10

Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $3.00 per share and has not been paid for three years. If Kuhns earned $1 million this year, what could be the maximum payment to the preferred stockholders on a per share basis?

Accepted Answer

A) $9.50 per share 
B) $15.00 per share 
C) $6.00 per share 
D) $5.00 per share 
A) $9.50 per share 
B) $15.00 per share 
C) $6.00 per share 
D) $5.00 per share

Question 11

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

Accepted Answer

A) a preemptive right. 
B) a poison pill. 
C) ex-rights. 
D) rights-on. 
A) a preemptive right. 
B) a poison pill. 
C) ex-rights. 
D) rights-on.

Question 12

A possible advantage to a rights offering is that

Accepted Answer

A) current shareholders are protected against dilution. 
B) the firm has a built-in market of knowledgeable investors. 
C) distribution costs are lower than a public offering. 
D) All of these options 
A) current shareholders are protected against dilution. 
B) the firm has a built-in market of knowledgeable investors. 
C) distribution costs are lower than a public offering. 
D) All of these options

Question 13

A rights offering may be of limited value to shareholders.

Accepted Answer

A) True 
 B)False

Question 14

Preferred stock may be good for a company because it

Accepted Answer

A) expands the capital base of the firm without diluting the common stock ownership. 
B) does not require interest payment in times of financial trouble, but are tax-deductible when dividends are paid. 
C) is not as costly as common stock or bonds. 
D) has no future negative ramifications when dividend payments are missed. 
A) expands the capital base of the firm without diluting the common stock ownership. 
B) does not require interest payment in times of financial trouble, but are tax-deductible when dividends are paid. 
C) is not as costly as common stock or bonds. 
D) has no future negative ramifications when dividend payments are missed.

Question 15

Which of the following is not true about preferred stock?

Accepted Answer

A) 70% of dividends are nontaxable to other corporations that hold preferred stock. 
B) The after-tax cost is higher than debt with the same yield. 
C) Dividends are legal obligations of the firm. 
D) Preferred stocks are typically cumulative with respect to dividends. 
A) 70% of dividends are nontaxable to other corporations that hold preferred stock. 
B) The after-tax cost is higher than debt with the same yield. 
C) Dividends are legal obligations of the firm. 
D) Preferred stocks are typically cumulative with respect to dividends.

Question 16

A stock is said to sell "ex-rights"

Accepted Answer

A) when the period in which the subscription privilege is to be exercised has expired. 
B) when transfer of stock ownership no longer carries with it the privilege of subscription. 
C) after the rights have all been exercised and the new issue is completely sold. 
D) after the terms of the subscription have been made public. 
A) when the period in which the subscription privilege is to be exercised has expired. 
B) when transfer of stock ownership no longer carries with it the privilege of subscription. 
C) after the rights have all been exercised and the new issue is completely sold. 
D) after the terms of the subscription have been made public.

Question 17

North stock sells for $65 rights-on, and the subscription price is $55. Nine rights are required to purchase one share. The value of a right is ________.

Accepted Answer

A) $0.11 
B) $1.11 
C) $1.00 
D) $1.50 
A) $0.11 
B) $1.11 
C) $1.00 
D) $1.50

Question 18

The increasing sophistication of individual investors has decreased the role of institutional investors in the stock market.

Accepted Answer

A) True 
 B)False

Question 19

Preferred stock dividends are a deductible expense for a corporation.

Accepted Answer

A) True 
 B)False

Question 20

Dutch Auction preferred stocks, unlike standard preferred stocks, are typically short-term instruments.

Accepted Answer

A) True 
 B)False

Exam 17: Common and Preferred Stock Financing

An increasing proportion of shares in the U.S. are owned by

A corporate investor of preferred stock receiving a before-tax preferred yield of 8.5%, and having a corporate tax rate of 30%, would receive an after-tax preferred yield of approximately _____. Assume the tax rate on dividends is 15%.

Coase Corp. has 10,000,000 outstanding shares. There are 11 directors on the firm's board. The Becker family owns 2,300,000 shares of Coase Corp. How many directors can the Becker family be assured of electing by themselves if Coase Corp. uses majority voting?

Under normal operating conditions, the board of directors is elected by

Stock classes may differ in both voting rights and dividend rights.

Participating preferred stock may receive an extra dividend in a particularly good year when earnings are above a stated level.

The floating rate feature on preferred stock allows the shareholders

Floating rate preferred stock allows shareholders to receive more or less than the quoted dividend based on the firm's success.

Under majority voting, it is easier for minority stockholders to elect some directors to the board.

Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $3.00 per share and has not been paid for three years. If Kuhns earned $1 million this year, what could be the maximum payment to the preferred stockholders on a per share basis?

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm to acquire the company is called

A possible advantage to a rights offering is that

A rights offering may be of limited value to shareholders.

Preferred stock may be good for a company because it

Which of the following is not true about preferred stock?

A stock is said to sell "ex-rights"

North stock sells for $65 rights-on, and the subscription price is $55. Nine rights are required to purchase one share. The value of a right is ________.

The increasing sophistication of individual investors has decreased the role of institutional investors in the stock market.

Preferred stock dividends are a deductible expense for a corporation.

Dutch Auction preferred stocks, unlike standard preferred stocks, are typically short-term instruments.

The Goals and Activities of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

Sources of Short-Term Financing

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants and Derivatives

External Growth Through Mergers

International Financial Management

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