65. “Pre emptive rights” means that
66. Which of the following actions will provide the shareholders with the most total wealth when a company
conducts a rights offering?
67. A rights offering
68. Which of the following best represents a benefit of a rights offering for a company?
69. Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative and 100,000
common stock outstanding. The preferred 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?
70. A stock is said to sell “ex-rights”
71. The subscription rate of a new offering is generally _______ than the rights-on price and _______ than
the ex-rights price.
72. Which one of the following statements is false?
73. Five rights are necessary to purchase one share of Fogel stock at $50. A right sells for $4. The ex-
rights value of Fogel stock is _______.
74. 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 $______.
75. 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 ________.
76. Tricki Corp stock sells for $45 rights-on, and the subscription price is $35. Ten rights are required to
purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is Tricki’s expected price when it
begins trading ex-rights?
77. Which one of the following is NOT an advantage that American Depository Receipts (ADRs) have over
investing in actual shares of a foreign stock?
78. American Depository Receipts (ADRs) are
79. While of the following is FALSE about the board of directors (BOD) of a firm:
80. American Depository Receipts
81. Which would NOT be considered an American Depository Receipts (ADR) stock in the U.S.?
82. Preferred stock may be good for a company because it
83. The following are primary purchasers of preferred stock except
84. Which of the following is NOT true about preferred stock?
85. Preferred stock is often sold by companies
86. The par value on a preferred stock entitles the holder to
87. Which of the following is not a very common feature of preferred stock?
88. The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for
Harsanyi Corp. if it is in the 34% federal tax bracket? Assume the tax rate on dividends is 15%.
89. The Nash Corp. is considering four investments. Which provides the highest after-tax return for Nash
Corp. if it is in the 40% federal tax bracket? Assume the tax rate on dividends is 15%.
90. To the corporate investor, preferred stock offers which of the following advantages?
91. 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 34%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends
is 15%.
17–18
92. If a preferred stock is of the cumulative type,
93. Which of the following statements about floating rate preferred stock is true?
94. The floating rate feature on preferred stock allows the shareholders
95. “Dutch auction” preferred stock
96. Which of the following is the correct order of corporate issues based on risk and return? (From most
risk-return to least risk-return.)
17–19
97. Which of the following is an advantage of American Depository Receipts (ADRs)?
98. Which of the following is NOT a primary investor in preferred stock?
99. 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%.
100. An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a
tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is
15%.
17–20
101. Common stock holders rights include all of the following EXCEPT:
102. Which of the following statements is false with respect to the use of rights in financing?
17–21
Chapter 17 Test Bank – Static Summary
Category
# of Questions
AACSB: Analytical Thinking
31
AACSB: Reflective Thinking
71
Accessibility: Keyboard Navigation
98
Blooms: Apply
15
Blooms: Evaluate
1
Blooms: Remember
66
Blooms: Understand
20
Difficulty: Basic
47
Difficulty: Challenge
13
Difficulty: Intermediate
42
Learning Objective: 17-01 Common stockholders are the owners of the corporation and therefore have a claim to
undistributed income, the right to elect the board of directors, and other privileges.
27
Learning Objective: 17-02 Cumulative voting provides minority stockholders with the potential for some representation
on the board of directors.
10
Learning Objective: 17-03 A rights offering gives current stockholders a first option to purchase new shares.
25
Learning Objective: 17-04 Poison pills and other similar provisions may make it difficult for outsiders to take over a
corporation against management’s wishes.
5
Learning Objective: 17-05 Preferred stock is an intermediate type of security that falls somewhere between debt and
common stock.
37
Topic: Classes of stock
4
Topic: Defensive tactics
4
Topic: Equity securities
9
Topic: Historical performance
1
Topic: Preferred stock features
30
Topic: Rights offerings
25
Topic: Risks and returns
1
Topic: Shareholder rights
9
Topic: Shareholder voting
12
Topic: Taxes
7