Question 1

Debt that may be extinguished before maturity is referred to as:

Accepted Answer

A)   sinking-fund debt.
B)   debentures.
C)   callable debt.
D)   indenture debt.E) C) and D)
F) B) and D)

Question 2

A stock certificate often has a stated value on it.This amount is the:

Accepted Answer

A)   book value.
B)   stated book value.
C)   subordinated liquidation value.
D)   par value.E) A) and D)
F) None of the above

Question 3

If you own 1,000 shares of stock and you can cast only 1,000 votes for a particular director,then the stock features:

Accepted Answer

A)   cumulative voting.
B)   absolute priority voting.
C)   sequential voting.
D)   straight voting.E) C) and D)
F) None of the above

Question 4

Mike's Mopeds used internal financing as a source of long-term financing for 70% of its total needs in 2014.The company borrowed an additional 20% of its total needs in the long-term debt markets in 2014.What were Mike's net new stock issues,in percentage terms,for 2014?

Accepted Answer

A)   -10%
B)   -5%
C)   5%
D)   10%
E)   15%F) D) and E)
G) A) and D)

Question 5

The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings.This prohibition is an example of a(n) :

Accepted Answer

A)   maintenance of security provision.
B)   collateral restriction.
C)   affirmative indenture.
D)   restrictive covenant.E) A) and B)
F) None of the above

Question 6

Authorized common stock usually refers to:

Accepted Answer

A)   the stock's par value.
B)   last year's retained earnings.
C)   book value per share.
D)   maximum number of shares that a corporation is authorized to issue and is stated in the article of incorporation.
E)   treasury stock.F) A) and B)
G) A) and C)

Question 7

The market value of the ownership of the firm equals:

Accepted Answer

A)   the market price of the stock times the number of shares outstanding.
B)   the sum of the market price of the bonds and the stock.
C)   the par value of the stock times the number of shares outstanding.
D)   the market price of the stock minus the retained earnings.E) A) and B)
F) None of the above A

Question 8

The Knot Knit Corporation needs to elect 9 directors.There are 120,000 shares outstanding.Under cumulative voting,how many shares would you need to own to guarantee that your favorite candidate is elected?

Accepted Answer

Total Votes 120,000 * 9 = 1,080,000 and 108,000 votes for any 1 candidate would guarantee that candidate's election.In order to place 108,000 votes,you would need to hold 108,000/9 = 12,000 shares.
OR: 120,000/(9 + 1)= 12,000

Question 9

Financial economist prefer to use market values when measuring debt ratios because:

Accepted Answer

A)   market values are more stable than book values.
B)   market values are a better reflection of current value than historical value.
C)   market values are readily available and do not have to be calculated like book values.
D)   market values are more difficult to calculate which makes financial economists more valuable.E) B) and C)
F) A) and D)

Question 10

Tree Top Toys needs to finance their new production facility for spyglasses.The cost is $12 million.They expect to payout $6 million or 40% of their net cashflow.Any external financing will be raised 80% borrowings and the remainder equity.Unfortunately,the company has no internal excess short-term funds to use.How much total equity cashflow will be used?

Accepted Answer

A)   $0.6 million.
B)   $2.4 million.
C)   $9.0 million.
D)   $9.6 million.
E)   $3.0 million.F) A) and C)
G) B) and D)

Question 11

Corporations try to create hybrid securities that look like equity but are called debt because:

Accepted Answer

A)   bankruptcy costs are eliminated or reduced.
B)   these securities have lower risk than debt.
C)   both debt interest expense is tax deductible; and these securities have lower risk than debt.
D)   both debt interest expense is tax deductible; and bankruptcy costs are eliminated.E) C) and D)
F) B) and C)

Question 12

Which of the following does not represent a major difference between debt and equity?

Accepted Answer

A)   Creditors do not have voting power as stockholders do.
B)   Payment on interest on debt in considered an expense, while payment of dividends is not.
C)   Unpaid debt is a liability of the firm, and if not paid, can result in liquidation of the firm. Unpaid dividends cannot.
D)   One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt.E) None of the above
F) B) and C)

Question 13

Retained earnings are:

Accepted Answer

A)   the amount of cash that the firm has saved up.
B)   the difference between the net income earned and the dividends paid in a year.
C)   the difference between the market price of the stock and the book value.
D)   the amount of stock repurchased.E) A) and B)
F) B) and C) B

Question 14

If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.

Accepted Answer

A)   proxy fight
B)   stockholder derivative action
C)   tender offer
D)   vote of confidenceE) B) and D)
F) B) and C)

Question 15

The market-to-book value ratio implies growth and success when it is:

Accepted Answer

A)   less than 1.
B)   less than 0.
C)   less than 10.
D)   greater than 1.E) None of the above
F) C) and D)

Question 16

Not paying the dividends on a cumulative preferred issue may result in:

Accepted Answer

A)   preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid.
B)   additional voting rights are granted to common stockholders if dividends are in arrears.
C)   full payment of dividends to common shareholders.
D)   both preferred dividend arrears that can be eliminated by the common shareholders only after common dividends are paid; and additional voting rights are granted to common stockholders if dividends are in arrears.
E)   both voting rights are granted to preferred stockholders if preferred dividends are in arrears; and no payment of dividends to common shareholders.F) B) and D)
G) A) and B)

Question 17

Income trusts are structured such that income is taxed in the hands of the:

Accepted Answer

A)   income trust.
B)   operating entity.
C)   unitholders.
D)   there is no tax on income trusts.E) A) and B)
F) A) and C)

Question 18

Technically speaking,a long-term corporate debt offering that features a specific attachment to property is generally called a:

Accepted Answer

A)   debenture.
B)   bond.
C)   long-term liability.
D)   preferred liability.E) B) and D)
F) A) and B)

Question 19

If a debenture is subordinated,it:

Accepted Answer

A)   has a higher priority status than specified creditors.
B)   is secondary to equity.
C)   must give preference to the specified creditor in the event of default.
D)   has been issued because the company is in default.E) A) and B)
F) C) and D)

Question 20

The market-to-book value ratio and the Tobin's Q ratio are both indicators of a successful firm when:

Accepted Answer

A)   their values are both greater than 0.
B)   their values are both no less than 10.
C)   their values are both less than 0.
D)   their values are both less than 1.
E)   their values are both greater than 1.F) B) and C)
G) A) and B)

Exam 15: Long-Term Financing: an Introduction

Debt that may be extinguished before maturity is referred to as:

Correct Answer
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A stock certificate often has a stated value on it.This amount is the:

Correct Answer
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If you own 1,000 shares of stock and you can cast only 1,000 votes for a particular director,then the stock features:

Correct Answer
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Mike's Mopeds used internal financing as a source of long-term financing for 70% of its total needs in 2014.The company borrowed an additional 20% of its total needs in the long-term debt markets in 2014.What were Mike's net new stock issues,in percentage terms,for 2014?

Correct Answer
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The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings.This prohibition is an example of a(n) :

Correct Answer
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Authorized common stock usually refers to:

Correct Answer
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The market value of the ownership of the firm equals:

Correct Answer
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A

The Knot Knit Corporation needs to elect 9 directors.There are 120,000 shares outstanding.Under cumulative voting,how many shares would you need to own to guarantee that your favorite candidate is elected?

Correct Answer
verified
Total Votes 120,000 * 9 = 1,080,000 and 108,000 votes for any 1 candidate would guarantee that candidate's election.In order to place 108,000 votes,you would need to hold 108,000/9 = 12,000 shares. OR: 120,000/(9 + 1)= 12,000

Financial economist prefer to use market values when measuring debt ratios because:

Correct Answer
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Correct Answer
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Corporations try to create hybrid securities that look like equity but are called debt because:

Correct Answer
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Which of the following does not represent a major difference between debt and equity?

Correct Answer
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Retained earnings are:

Correct Answer
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B

If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.

Correct Answer
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The market-to-book value ratio implies growth and success when it is:

Correct Answer
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Not paying the dividends on a cumulative preferred issue may result in:

Correct Answer
verified

Income trusts are structured such that income is taxed in the hands of the:

Correct Answer
verified

Technically speaking,a long-term corporate debt offering that features a specific attachment to property is generally called a:

Correct Answer
verified

If a debenture is subordinated,it:

Correct Answer
verified

The market-to-book value ratio and the Tobin's Q ratio are both indicators of a successful firm when:

Correct Answer
verified

Exam 15: Long-Term Financing: an Introduction

Debt that may be extinguished before maturity is referred to as:

Correct AnswerverifiedShow Answer

A stock certificate often has a stated value on it.This amount is the:

Correct AnswerverifiedShow Answer

If you own 1,000 shares of stock and you can cast only 1,000 votes for a particular director,then the stock features:

Correct AnswerverifiedShow Answer

Mike's Mopeds used internal financing as a source of long-term financing for 70% of its total needs in 2014.The company borrowed an additional 20% of its total needs in the long-term debt markets in 2014.What were Mike's net new stock issues,in percentage terms,for 2014?

Correct AnswerverifiedShow Answer

The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings.This prohibition is an example of a(n) :

Correct AnswerverifiedShow Answer

Authorized common stock usually refers to:

Correct AnswerverifiedShow Answer

The market value of the ownership of the firm equals:

Correct AnswerverifiedA

The Knot Knit Corporation needs to elect 9 directors.There are 120,000 shares outstanding.Under cumulative voting,how many shares would you need to own to guarantee that your favorite candidate is elected?

Correct AnswerverifiedTotal Votes 120,000 * 9 = 1,080,000 and 108,000 votes for any 1 candidate would guarantee that candidate's election.In order to place 108,000 votes,you would need to hold 108,000/9 = 12,000 shares. OR: 120,000/(9 + 1)= 12,000

Financial economist prefer to use market values when measuring debt ratios because:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Corporations try to create hybrid securities that look like equity but are called debt because:

Correct AnswerverifiedShow Answer

Which of the following does not represent a major difference between debt and equity?

Correct AnswerverifiedShow Answer

Retained earnings are:

Correct AnswerverifiedB

If a group other than management solicits the authority to vote shares to replace management,a _____ is said to occur.

Correct AnswerverifiedShow Answer

The market-to-book value ratio implies growth and success when it is:

Correct AnswerverifiedShow Answer

Not paying the dividends on a cumulative preferred issue may result in:

Correct AnswerverifiedShow Answer

Income trusts are structured such that income is taxed in the hands of the:

Correct AnswerverifiedShow Answer

Technically speaking,a long-term corporate debt offering that features a specific attachment to property is generally called a:

Correct AnswerverifiedShow Answer

If a debenture is subordinated,it:

Correct AnswerverifiedShow Answer

The market-to-book value ratio and the Tobin's Q ratio are both indicators of a successful firm when:

Correct AnswerverifiedShow Answer

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A

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Total Votes 120,000 * 9 = 1,080,000 and 108,000 votes for any 1 candidate would guarantee that candidate's election.In order to place 108,000 votes,you would need to hold 108,000/9 = 12,000 shares. OR: 120,000/(9 + 1)= 12,000

Correct Answer
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B

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