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105. If financial markets were not efficient, it would be more likely for firms to:
106. The true value of a security is:
107. What procedures are used for elections to a firm's board of directors and other matters
put to shareholders?
108. What information is contained in the shareholders' equity account in the firm's financial
statements?
109. Show the capital accounts at the end of the first year of operation for a firm that, at the
beginning of the year, issued 50,000 shares of $1.50 par value common stock for $15 per share,
repurchased 5,000 shares during the year at $20 per share, and paid out (at the end of the year)
40% of earnings as dividends with a $0.50 per share dividend.
110. Illustrate the difference between majority and cumulative voting systems using as an
example a shareholder who owns 1,000 shares and an election in which three directors will be
selected. Why might shareholders care about which voting system is adopted?
111. What does it mean to say that financing is a zero-NPV transaction?
112. Disregarding issues of risk and return, why might it be important to shareholders and
management alike as to which class of equity is issued (e.g., common, preferred, etc.)?
113. Compare the after-tax rates of return for a corporate investor from the following two
investments: A 20-year corporate bond that sells for par and offers a 9% coupon versus an
investment in preferred stock that sells for $40 per share and pays a $2.40 dividend. The
corporation has a 35% tax rate.
114. Compare the after-tax rates of return for a corporate investor from the following two
investments: A 15-year corporate bond that sells for par and offers a coupon rate of 11% versus
an investment in preferred stock that sells for $40 per share and pays a $3.60 dividend. The
corporation has a 35% tax rate.
115. How does a call provision affect a bond's market value?
116. How would a convertible bondholder decide whether to exercise his rights of exchange?
117. Discuss why more firms are turning to internally generated funds to finance new
projects.
118. Preferred stock of financially strong firms sometimes sells at lower yields than the bonds
of those firms. For weaker firms, the preferred stock has a higher yield. What might explain this
pattern?
119. "Since internal funds provide the bulk of industry's needs for capital, the securities
markets serve little function." Does the speaker have a point?
120. Would you expect the price of a 10-year floating-rate bond to be more or less sensitive to
changes in interest rates than the price of a 10-year fixed-rate bond?
121. Suppose Heinz is considering two issues of 20-year maturity coupon bonds; one issue
will be callable, the other will not be callable. For a given coupon rate, will the callable or
noncallable bond sell at the higher price? If the bonds are both to be sold to the public at face
value, which bond must have the higher coupon rate?
