Finance Chapter 14 2 Investor Might Prefer Floating rate Debt She

63.

An investor might prefer floating-rate debt if she thought that:

64.

If net equity issues have been negative,

65.

All of the following are true of retained earnings except:

66.

Jay’s Jams Inc. was just established with an investment of $3 million. Jay expects his company to generate free cash flow of

$800,000 a year for the next 10 years. If Jay’s cost of capital is 15%, find the market value and book value of his company.

67.

Wheat’s Market just issued 17,500 new shares of common stock at a price of $20 a share. How will this transaction affect the

equity accounts on the firm’s balance sheet if the par value is $1 per share?

68.

When new shares of stock are sold at a price greater than par value, the excess over par is recorded as:

69.

A firm just issued 15,000 new shares of stock with a market price of $14 per share and par value of $2 per share. Which one

of these correctly states the resulting change in the equity accounts?

70.

Corporations generally need shareholder approval to do which one of the following?

71.

Which statement correctly describes the company’s dividend decision?

72.

The value of retained earnings on the corporate balance sheet represents the amount of earnings:

73.

Which one of the following statements is typically correct for a going–concern firm?

74.

A company’s board of directors is primarily an agent of the company’s:

75.

The system of electing a board of directors where each director is voted on separately is known as:

76.

A shareholder owning 100 shares of stock is voting for the board of directors who are elected by cumulative voting. How

many votes will the shareholder cast for Director “A” if four directors are to be elected and the maximum number of votes

are cast for “A”?

77.

One way in which control of a corporation can be removed from the current board of directors is to:

78.

One common reason for issuing two distinct classes of common stock is to:

79.

Which one of the following statements is correct?

80.

What is the after-tax cost to a corporation in the 35% tax bracket of paying $50,000 in preferred stock dividends?

81.

Which one of the following statements is correct about a corporation in the 35% tax bracket that can invest either in a bond

paying 8% interest or in the preferred stock of another corporation that pays a 6% dividend? Ignore any differences in risk.

82.

What is the rationale for saying that the federal government provides a tax subsidy to corporate debtors?

83.

Which one of the following statements is correct about a floating interest rate loan if the interest rate is defined as “Prime

plus 1 percent”? The interest rate:

84.

Corporations that annually retire a set portion of their long–term debt are said to be using:

85.

An independent outside director:

86.

If a corporation has more shares issued than outstanding, then:

87.

Which one of the following statements is true with respect to financial and product markets?

88.

A warrant has an exercise price of $40, and the current stock price is $38. An investor holding this option will purchase the

stock only if the:

89.

Which one of these statements describes U.S. firms during recent years?

90.

A firm’s internally generated funds are calculated by:

91.

If 100 million shares of common stock are issued with a par value of $2 and additional paid in capital is $800 million, the

total par value of the issued shares is:

92.

A company is about to issue 1,000 new shares of stock at a market price of $33 per share. If the par value per share is $4, the

increase in capital surplus from this stock issue will be:

93.

One way that investors contribute capital to the firm is by:

94.

When a firm issues 50,000 shares with a par value of $5 and a market price of $22 per share, additional paid in capital will:

95.

If the Beta Co. issues $100 million worth of preferred stock, what will happen to its net worth if book value of common

equity is $500 million?

96.

Preferred stockholders generally:

97.

All of the following are types of innovative bonds except:

98.

The majority of an established firm’s capital is generated:

99.

Earnings this year for Plasti-tech Inc. were $200,000. It decided to plow back $60,000 and recorded $20,000 of depreciation.

Plasti-tech’s internally generated funds are:

100.

With respect to bonds, when interest rates increase typically:

101.

How does competition in financial markets compare to the competition that can be found in product markets?

102.

To state that financing at current market terms is a zero-NPV transaction indicates that:

103.

An efficient capital market is one in which:

104.

Which one of the following is least likely to contribute to the positive-NPV investments found in product markets?

105.

If financial markets were not efficient, it would be easier for firms to:

106.

The true value of a security is:

Chapter 14 Test bank – Static Summary