Chapter 14 Test bank – Static Key
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.
Companies sometimes sell the cash flows from a bundle of loans. Such bonds are known as asset-backed bonds.
12.
Firms have the right to resell any Treasury stock they own.
13.
Different classes of stock often have different voting rights.
14.
If shareholders do not like the policies that management pursues, they can vote in a different board of directors.
15.
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 created 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.
The term “senior debt” refers only to debt that was issued in the more distant past.
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 their 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 can never be resold.
33.
When firms retain cash, they are generating funds internally thereby decreasing the amount of external funds needed.
34.
Floating-rate bonds appeal to investors who are worried about fluctuations in interest rates.
35.
A stock’s par value is 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. In this case retained
earnings will:
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:
46.
A corporation’s net worth is composed of the:
47.
Preferred stock dividends:
48.
If a corporation receives $50,000 in preferred stock dividends, how much tax does it pay on these dividends? The corporate
tax rate is 35%.
49.
Which one of the following statements about floating–rate preferred stock is correct?
50.
Funded debt refers to those liabilities that:
51.
The purpose of a sinking fund is to:
52.
Warrants:
53.
Which one of these terms applies to the bundling of a group of loans with the subsequent sale of the cash flows from those
loans?
54.
Eurobonds are long-term, corporate liabilities that:
55.
Bonds that have been sold only to a limited number of institutional investors are considered:
56.
Which one of these accounts represents internal funding?
57.
A warrant grants its holder the right to do which one of these prior to a specified date?
58.
What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for
$80 per share?
59.
What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for
$45 per share?
60.
Convertible bonds resemble a combination of which two types of securities?
61.
What is the most commonly bundled type of loan in the asset-backed bond category?
62.
Which one of the following statements is correct?