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Exam 1: Corporate Finance and the Financial Manager

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Question 41

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Why is it possible for a corporation to enter into contracts, acquire assets, incur obligations, and enjoy protection against the seizure of its property?

A) Its owners are liable for any obligations it enters into.
B) It is a legally defined, artificial entity that is separate from its owners.
C) The number of owners, and hence the spread of risk among these owners, is not limited.
D) The state in which the corporation is incorporated provides safeguards against any wrongdoing by the corporation.

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Question 42

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Financial decisions require that you weigh alternatives in strictly monetary terms.

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Question 43

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A company that produces racing motorbikes has several models that sell well within the motorcycle racing community and which are very profitable for the company. Despite having a profitable product, why must this company take care to ensure that it has sufficient cash on hand to meet its obligations?

You are a shareholder in a corporation which has announced a profit of $6 per share, of which it retains $2 for reinvestment and distributes the rest as dividend payments. A franking credit of $1.71 per share attaches to the dividend. Given that the personal tax rate is 35%, how much tax must you pay per share?

A typical 'public' company has many types of shareholders, from individuals holding a few shares, to large institutions that hold very large numbers of shares. How does a financial manager ensure that the priorities and concerns of such disparate shareholders are met?

What are the terms for the two types of prices quoted for a share on an exchange?

A company's board of directors chooses to provide a comprehensive health care plan for the families of all employees, despite the large cost. They argue that this will not only increase the number of employees who stay with the firm, and thus reduce some costs involved in employee turnover, but also increase the employees' diligence and industry. What general principle is being argued by the board of directors?

What is the most common type of firm in the world?

What is the major way in which the roles and obligations of the owners of a corporation differ from the roles and obligations of limited partners in a limited partnership?

Helen owns 12.5% of the stock of the Median Corporation. If Median makes a dividend payment of $25,000,000 paid proportionally to its shareholders, how much of this amount would Helen receive, disregarding tax?

What is the term for the applicable price that I will pay, if I have to buy a share?

Use the figure for the question(s) below. $\begin{array}{l}\text { GOLD SEAM CORP }\\\begin{array} { l r l r } \hline \text { Last Trade: } & 91.11 & \text { Day's Range: } & 91.06 - 91.98 \\\text { Trade Time: } & 4 : 00 \mathrm { PM } \mathrm { ET } & \text { 52wk Range: } & 63.39 - 100.44 \\\text { Change: } & \downarrow 0.19 ( 0.21 \% ) & \text { Volume: } & 4,705,410 \\\text { Prev Close: } & 91.30 & \text { Avg Vol } ( 3 \mathrm {~m} ) : & 12,703,300 \\\text { Open: } & 91.32 & \text { YTD Return (Mkt) } { } ^ { 2 } : & 9.64 \% \\\text { Bid: } & 91.35 \times 1100 & \text { Net Assets } 2 : & 19.26 \mathrm {~B} \\\text { Ask: } & 91.65 \times 100 & \text { P/E (ttm) } { } ^ { 2 } : & \mathrm { N } / \mathrm { A } \\\text { NAV } ^ { 1 } : & 91.56 & \text { Yield } ( \mathrm { ttm } ) ^ { 2 } : & \mathrm { NaN } \% \\\hline\end{array}\end{array}$ -Based on the information shown above, what would it cost to buy 1000 shares of Gold Seam Corp?

Raising new capital by issuing bonds is an example of a commercial banking activity.

Why is it in general difficult to determine the market price of a private corporation's shares at any point in time?

In Australia, dividend imputation may reduce the tax payable by

A 'public' company

Which of the following is NOT an advantage of a sole trader?

Investments by wealthy individuals and endowments is a major source of money for each of the following EXCEPT:

A factory owner wants his workers to produce as many widgets as they can, so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random at various stages of their manufacture. If a defect is found in a widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the agency problem in this case?