Question 1

Under majority voting, any group of stockholders owning over 50 percent of the common stock may elect all of the directors.

Accepted Answer

A) True 
 B)False

Question 2

American Depository Receipts (ADRs) are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 3

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Accepted Answer

A) True 
 B)False

Question 4

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 5

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 21% federal tax bracket? Assume the tax rate on dividends is 15%.

Accepted Answer

A)  Treasury bonds at 5.0% 
B)  Corporate bonds at 8.0% 
C)  Municipal bonds at 5.0% 
D)  Preferred stock at 6.0% 
A)  Treasury bonds at 5.0% 
B)  Corporate bonds at 8.0% 
C)  Municipal bonds at 5.0% 
D)  Preferred stock at 6.0%

Question 6

Which would NOT be considered an American Depository Receipts (ADR) stock in the U.S.?

Accepted Answer

A)  Heineken 
B)  Nestle 
C)  Sony 
D)  Intel 
A)  Heineken 
B)  Nestle 
C)  Sony 
D)  Intel

Question 7

Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

Accepted Answer

A)  800,001 
B)  1,000,001 
C)  1,090,910 
D)  888,889 
A)  800,001 
B)  1,000,001 
C)  1,090,910 
D)  888,889

Question 8

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

Accepted Answer

A) True 
 B)False

Question 9

The effect of a rights offering on a stockholder is

Accepted Answer

A)  the right to sell stocks, in which the stockholder's wealth only increases if the stock is sold. 
B)  the right to own more stocks, in which the stockholder's wealth increases only if the new stock is purchased. 
C)  the right to own more shares at a cheaper price, while the wealth of the stockholder's original shares goes up. 
D)  the right to own more shares at a cheaper price, but the wealth of the stockholder's original shares goes down. 
A)  the right to sell stocks, in which the stockholder's wealth only increases if the stock is sold. 
B)  the right to own more stocks, in which the stockholder's wealth increases only if the new stock is purchased. 
C)  the right to own more shares at a cheaper price, while the wealth of the stockholder's original shares goes up. 
D)  the right to own more shares at a cheaper price, but the wealth of the stockholder's original shares goes down.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not a true statement?

Accepted Answer

A)  Common stockholders have a residual claim to income. 
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments. 
C)  Common stockholders are legally entitled to some dividend. 
D)  A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock. 
A)  Common stockholders have a residual claim to income. 
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments. 
C)  Common stockholders are legally entitled to some dividend. 
D)  A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock.

Question 12

Participating preferred stock gives its owners voting rights.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Hewlett-Packard's capital stock has 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 15

Buggy Whip Manufacturing Company is issuing preferred stock yielding 8%. Selten Corporation is considering buying the stock. Assume that Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 21%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends is 15%.

Accepted Answer

A)  7.22% 
B)  5.33% 
C)  7.64% 
D)  8.00% 
A)  7.22% 
B)  5.33% 
C)  7.64% 
D)  8.00%

Question 16

Preferred stock is often sold by companies

Accepted Answer

A)  wanting to balance their capital structures. 
B)  that have a large amount of debt relative to equity. 
C)  looking for the taxable advantages of preferred dividends over common stock dividends. 
D)  that have a large amount of debt relative to equity and that want to balance their capital structures. 
A)  wanting to balance their capital structures. 
B)  that have a large amount of debt relative to equity. 
C)  looking for the taxable advantages of preferred dividends over common stock dividends. 
D)  that have a large amount of debt relative to equity and that want to balance their capital structures.

Question 17

Investors are usually in favor of poison pills because they prevent takeovers.

Accepted Answer

A) True 
 B)False

Question 18

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 the stockholder buys the stock, they no longer get a right toward the future purchase of stock. 
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 the stockholder buys the stock, they no longer get a right toward the future purchase of stock. 
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 19

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

Accepted Answer

A) True 
 B)False

Question 20

Stock classes may differ in voting rights, dividend rights, and claims to income during company elimination.

Accepted Answer

A) True 
 B)False

Under majority voting, any group of stockholders owning over 50 percent of the common stock may elect all of the directors.

American Depository Receipts (ADRs) are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

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

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 21% federal tax bracket? Assume the tax rate on dividends is 15%.

Which would NOT be considered an American Depository Receipts (ADR) stock in the U.S.?

Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

The effect of a rights offering on a stockholder is

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

Which of the following is not a true statement?

Participating preferred stock gives its owners voting rights.

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

Hewlett-Packard's capital stock has 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.

Preferred stock is often sold by companies

Investors are usually in favor of poison pills because they prevent takeovers.

A stock is said to sell "ex-rights"

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

Stock classes may differ in voting rights, dividend rights, and claims to income during company elimination.

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

Exam 17: Common and Preferred Stock Financing

Under majority voting, any group of stockholders owning over 50 percent of the common stock may elect all of the directors.

American Depository Receipts (ADRs) are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

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

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 21% federal tax bracket? Assume the tax rate on dividends is 15%.

Which would NOT be considered an American Depository Receipts (ADR) stock in the U.S.?

Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

The effect of a rights offering on a stockholder is

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

Which of the following is not a true statement?

Participating preferred stock gives its owners voting rights.

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

Hewlett-Packard's capital stock has 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.

Preferred stock is often sold by companies

Investors are usually in favor of poison pills because they prevent takeovers.

A stock is said to sell "ex-rights"

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

Stock classes may differ in voting rights, dividend rights, and claims to income during company elimination.

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