Question 1

The floating rate feature on preferred stock causes more volatility in its price.

Accepted Answer

A) True 
 B)False

Question 2

Common stockholders may assign a proxy, or the power to cast their ballot, only when majority voting is in place.

Accepted Answer

A) True 
 B)False

Question 3

The market price of "floating rate" preferred stock is less volatile than that of regular preferred stock.

Accepted Answer

A) True 
 B)False

Question 4

Although ADRs are traded in the U.S. in dollars, foreign currency risk for the U. S. investor remains.

Accepted Answer

A) True 
 B)False

Question 5

The particular type of shareholder voting used has become less important with the influence of takeovers, leveraged buy-outs, and other challenges to management control.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is false with respect to the use of rights in financing?

Accepted Answer

A) Rights offerings are used by many U.S.companies. 
B) Shares are usually priced at a premium. 
C) Rights offerings are especially popular in Europe. 
D) All of these statements are true. 
A) Rights offerings are used by many U.S.companies. 
B) Shares are usually priced at a premium. 
C) Rights offerings are especially popular in Europe. 
D) All of these statements are true.

Question 7

Hewlett-Packard's capital stock has largely recovered from the loss of confidence brought about by the failure to find a successful CEO and the multimillion-dollar severance packages the ousted executives received.

Accepted Answer

A) True 
 B)False

Question 8

Stock classes are similar to bond ratings in that they are used to rank the performance of different corporations' stock.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is the correct order of corporate issues based on risk and return? (From most risk-return to least risk-return.)

Accepted Answer

A) Common stock, subordinated debentures, secured debt, Treasury bills 
B) Preferred stock, common stock, subordinated debentures, secured debt 
C) Common stock, long-term government bonds, secured debt, subordinated debt 
D) Common stock, secured debt, subordinated debentures, preferred stock 
A) Common stock, subordinated debentures, secured debt, Treasury bills 
B) Preferred stock, common stock, subordinated debentures, secured debt 
C) Common stock, long-term government bonds, secured debt, subordinated debt 
D) Common stock, secured debt, subordinated debentures, preferred stock

Question 10

Generally, the receipt of corporate bond interest is more valuable than preferred dividends to corporate investors.

Accepted Answer

A) True 
 B)False

Question 11

The purpose of cumulative voting is

Accepted Answer

A) to maintain majority control of the board of directors. 
B) to allow minority stockholders the possibility of a voice on the board of directors. 
C) to obstruct unfriendly mergers and takeover efforts. 
D) to prevent the dilution of common stock through preemptive rights offerings. 
A) to maintain majority control of the board of directors. 
B) to allow minority stockholders the possibility of a voice on the board of directors. 
C) to obstruct unfriendly mergers and takeover efforts. 
D) to prevent the dilution of common stock through preemptive rights offerings.

Question 12

When a stock sells ex-rights, the sale of the shares no longer entitles the purchaser to receive a right.

Accepted Answer

A) True 
 B)False

Question 13

To the security holder, preferred stock offers the highest risk and the lowest return.

Accepted Answer

A) True 
 B)False

Question 14

Stockholders always have preemptive rights when new issues of stock are offered.

Accepted Answer

A) True 
 B)False

Question 15

If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive relative to a debt issuance.

Accepted Answer

A) True 
 B)False

Question 16

The after-tax cost of debt is cheaper than preferred stock to the issuing corporation, all things being equal.

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following is NOT an advantage that American Depository Receipts (ADRs) have over investing in actual shares of a foreign stock?

Accepted Answer

A) ADRs are an effective barrier to foreign currency risk. 
B) Unlike direct foreign stock, ADRs have financial statements presented in a GAAP format. 
C) Dividends are paid in dollars and are easier to collect than actual shares of foreign stock. 
D) ADRs are more liquid and less expensive than buying foreign stock directly. 
A) ADRs are an effective barrier to foreign currency risk. 
B) Unlike direct foreign stock, ADRs have financial statements presented in a GAAP format. 
C) Dividends are paid in dollars and are easier to collect than actual shares of foreign stock. 
D) ADRs are more liquid and less expensive than buying foreign stock directly.

Question 18

Participating preferred stock gives its owners voting rights.

Accepted Answer

A) True 
 B)False

Question 19

Stock purchased through a rights offering may carry lower margin requirements.

Accepted Answer

A) True 
 B)False

Question 20

The ex-rights date usually takes place after the end of the subscription period.

Accepted Answer

A) True 
 B)False

Exam 17: Common and Preferred Stock Financing

The floating rate feature on preferred stock causes more volatility in its price.

Common stockholders may assign a proxy, or the power to cast their ballot, only when majority voting is in place.

The market price of "floating rate" preferred stock is less volatile than that of regular preferred stock.

Although ADRs are traded in the U.S. in dollars, foreign currency risk for the U. S. investor remains.

The particular type of shareholder voting used has become less important with the influence of takeovers, leveraged buy-outs, and other challenges to management control.

Which of the following statements is false with respect to the use of rights in financing?

Hewlett-Packard's capital stock has largely recovered from the loss of confidence brought about by the failure to find a successful CEO and the multimillion-dollar severance packages the ousted executives received.

Stock classes are similar to bond ratings in that they are used to rank the performance of different corporations' stock.

Which of the following is the correct order of corporate issues based on risk and return? (From most risk-return to least risk-return.)

Generally, the receipt of corporate bond interest is more valuable than preferred dividends to corporate investors.

The purpose of cumulative voting is

When a stock sells ex-rights, the sale of the shares no longer entitles the purchaser to receive a right.

To the security holder, preferred stock offers the highest risk and the lowest return.

Stockholders always have preemptive rights when new issues of stock are offered.

If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive relative to a debt issuance.

The after-tax cost of debt is cheaper than preferred stock to the issuing corporation, all things being equal.

Which one of the following is NOT an advantage that American Depository Receipts (ADRs) have over investing in actual shares of a foreign stock?

Participating preferred stock gives its owners voting rights.

Stock purchased through a rights offering may carry lower margin requirements.

The ex-rights date usually takes place after the end of the subscription period.

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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