Question 1

Each common stockholder has the ability to vote, and may assign a proxy if they desire to pass the voting right along.

Accepted Answer

A) True 
 B)False

Question 2

Under cumulative voting, holding 30% of the shares outstanding will guarantee an investor the ability to elect three of nine directors to the board.

Accepted Answer

A) True 
 B)False

Question 3

The most important feature of the preemptive right is that the rights

Accepted Answer

A)  may be sold for profit. 
B)  possibly protect the stockholders' shares against dilution. 
C)  may accumulate more votes. 
D)  are nontransferable. 
A)  may be sold for profit. 
B)  possibly protect the stockholders' shares against dilution. 
C)  may accumulate more votes. 
D)  are nontransferable.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

When comparing common stock of the same company, it is fair to say that

Accepted Answer

A)  all shares, no matter how many classes, are all created with the same equal rights. 
B)  companies sometimes have two different classes of shares with unequal rights to dividends and votes. 
C)  the Securities and Exchange Commission allows only one class of common stock. 
D)  investors are indifferent between class A and class B shares. 
A)  all shares, no matter how many classes, are all created with the same equal rights. 
B)  companies sometimes have two different classes of shares with unequal rights to dividends and votes. 
C)  the Securities and Exchange Commission allows only one class of common stock. 
D)  investors are indifferent between class A and class B shares.

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

A rights offering may be of limited value to shareholders.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Seven rights are necessary to purchase one share of Fogel stock at $34. The ex-rights value of Fogel stock is $48. The right sells for $________.

Accepted Answer

A)  $14 
B)  $11 
C)  $48 
D)  $2 
A)  $14 
B)  $11 
C)  $48 
D)  $2

Question 10

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 11

Due to the 2017 Tax Cuts and Jobs Act, for companies owning between 20 and 80 percent of another company, any dividends received from that company are taxed at 35 percent, however most companies don't fall into this category.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

If a preferred stock is of the cumulative type,

Accepted Answer

A)  dividends must be paid on an equal basis with common stock, so long as earnings permit. 
B)  dividends cannot be passed if they are earned. 
C)  dividends must be paid, and if not a liability is created. 
D)  unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders. 
A)  dividends must be paid on an equal basis with common stock, so long as earnings permit. 
B)  dividends cannot be passed if they are earned. 
C)  dividends must be paid, and if not a liability is created. 
D)  unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders.

Question 15

Participating preferred stock is advantageous to common stockholders because it receives more dividends.

Accepted Answer

A) True 
 B)False

Question 16

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 17

Which of the following best represents a benefit of a rights offering?

Accepted Answer

A)  Rights offerings increase return on equity. 
B)  Rights offerings substantiate higher debt-to-equity ratios. 
C)  Rights offerings have lower margin requirements. 
D)  None of these options are true. 
A)  Rights offerings increase return on equity. 
B)  Rights offerings substantiate higher debt-to-equity ratios. 
C)  Rights offerings have lower margin requirements. 
D)  None of these options are true.

Question 18

Which of the following is NOT a primary investor in preferred stock?

Accepted Answer

A)  Commercial banks 
B)  Corporations 
C)  Insurance companies 
D)  Pension funds 
A)  Commercial banks 
B)  Corporations 
C)  Insurance companies 
D)  Pension funds

Question 19

Which of the following actions will provide the greatest increase in wealth to shareholders when a company conducts a rights offering?

Accepted Answer

A)  Exercise the right to buy new shares to increase wealth. 
B)  Sell the rights themselves and hold existing shares and cash. 
C)  Exercise the rights and sell the shares to increase wealth. 
D)  None of these options are true. 
A)  Exercise the right to buy new shares to increase wealth. 
B)  Sell the rights themselves and hold existing shares and cash. 
C)  Exercise the rights and sell the shares to increase wealth. 
D)  None of these options are true.

Question 20

The difference between the rights-on and ex-rights common stock price is equal to the value of a right to purchase future stocks, all other things being equal.

Accepted Answer

A) True 
 B)False

Exam 17: Common and Preferred Stock Financing

Each common stockholder has the ability to vote, and may assign a proxy if they desire to pass the voting right along.

Under cumulative voting, holding 30% of the shares outstanding will guarantee an investor the ability to elect three of nine directors to the board.

The most important feature of the preemptive right is that the rights

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

When comparing common stock of the same company, it is fair to say that

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

A rights offering may be of limited value to shareholders.

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

Seven rights are necessary to purchase one share of Fogel stock at $34. The ex-rights value of Fogel stock is $48. The right sells for $________.

The purpose of cumulative voting is

Due to the 2017 Tax Cuts and Jobs Act, for companies owning between 20 and 80 percent of another company, any dividends received from that company are taxed at 35 percent, however most companies don't fall into this category.

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.

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

If a preferred stock is of the cumulative type,

Participating preferred stock is advantageous to common stockholders because it receives more dividends.

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

Which of the following best represents a benefit of a rights offering?

Which of the following is NOT a primary investor in preferred stock?

Which of the following actions will provide the greatest increase in wealth to shareholders when a company conducts a rights offering?

The difference between the rights-on and ex-rights common stock price is equal to the value of a right to purchase future stocks, all other things being equal.

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

Filters