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1. Only a portion of the board of directors are up for election in any given year when a firm
has a classified board.
2. Shares of stock that have been issued and subsequently repurchased by the issuer are
known as treasury stock.
3. The price at which new shares are sold to investors almost always exceeds par value. The
difference is entered into the company's accounts as additional paid-in capital, or capital
surplus.
4. Firms tend to issue more debt when internal funds are low.
5. In proxy contests, outsiders compete with the firm's existing management and directors
for control of the corporation.
6. Historically, internally generated cash covers less than half of the non-financial firms'
capital requirements in the U.S.
7. The gap between internally generated cash and the cash that the company needs is called
the financial deficit.
8. Ford Motor Company and Google have issued two classes of shares with different voting
rights to allow their firms to obtain fresh capital without giving up their management's controlling
rights.
9. Suppose a firm needs fresh capital, but its management does not want to give up its
controlling interest. The existing shares could be labeled Class A, and then Class B shares with
limited voting rights could be issued to outside investors.
10. If an incompetent management team controls a large block of votes, it may use these
votes to stay in control.
11. The issuer of mortality bonds is concerned about an unusually large number of premature
deaths.
12. Firms have the right to resell any Treasury stock they own.
13. Differences in classes of stock often appear in their voting rights.
14. If shareholders do not like the policies that management pursues, their easiest solution is
to vote in a different board of directors.
15. The NYSE requires that a majority of a firm's directors must be independent of the firm's
management.
16. Corporate investors are indifferent between investing in common and preferred shares.
17. If you are concerned with maintaining the market value of your preferred stock, you should
purchase floating-rate preferred shares.
18. A convertible bond generally has a higher market value than a comparable non-convertible
bond.
19. A corporation cannot default on funded debt.
20. Dividends represent an important component of a firm's net book value.
21. The price at which new shares are issued is referred to as the par value of the stock.
22. A capital surplus is obtained when the selling price of new shares is greater than the par
value.
23. Declassification of a firm's board tends to increase the market value of the firm's stock.
24. With floating-rate preferred stock, dividends are directly linked to interest rates.
25. In a bankruptcy situation, funded debt will be repaid while unfunded debt will not.
26. Holders of callable bonds know that the company will wish to buy the issue back if interest
rates fall, and therefore the price of the bond will not rise above the call price.
27. Callable bonds may be repurchased by the issuing firm before maturity at the specified
call price.
28. The call provision of callable bonds comes at the expense of bond holders, for it limits
investors' capital gain potential.
29. Bonds with the callable feature tend to sell at lower prices than bonds without such a
feature.
30. A eurobond is defined as any bond that is denominated in euros.
31. For most firms, the majority of their funding is from external sources.
32. Privately placed debt must be held until maturity and cannot be resold.
33. When firms retain cash, they are generating funds internally thereby decreasing the
amount of external funds needed.
34. Bond issuers can appeal to inflation-conscious investors by issuing floating-rate bonds.
35. A stock's par value is represented by the:
36. Additional paid-in capital refers to:
37. Which one of the following equity concepts would you expect to be
least
important to a
financial analyst?
38. Any capital surplus shown by a firm on its balance sheet results from:
39. How much will be recorded as a firm's additional paid-in capital if the firm issues 1
million shares that have a $5 par value for $15 per share?
40. If a corporation issues 1,000 shares of $1 par value stock for $10 per share, then retained
earnings will:
41. Assume a firm with 5,000 shares outstanding earns $10 per share and has a 30%
plowback ratio. These earnings will cause retained earnings to:
42. What is the book value per share of equity for a firm with $1 million in net common
equity, $50,000 in authorized share capital, 25,000 shares issued, and 20,000 shares
outstanding?
43. Assume a corporation has cumulative voting and there are two directors up for election.
What is the maximum number of votes a shareholder who owns 100 shares can cast for
Candidate Jones if there are a total of 5 candidates?
44. Assume a corporation has cumulative voting and there are two directors up for election.
What is the minimum number of votes a shareholder who owns 100 shares can cast for
Candidate Jones if there are a total of 5 candidates?
45. A proxy contest is typically one in which:
