Question 1

Debt that may be extinguished before maturity is referred to as:

Accepted Answer

A)  sinking-fund debt.
B)  debentures.
C)  callable debt.
D)  indenture debt.
E)  None of the above.

Question 2

The Lory Bookstore used internal financing as a source of long-term financing for 80% of its total needs in 2008.The company borrowed an additional 27% of its total needs in the long-term debt markets in 2008.What were Lory's net new stock issues in that year?

Accepted Answer

A)  -20%
B)  -7%
C)  7%
D)  20%
E)  27%

Question 3

Calhoun Computech used internal financing as a source of long-term financing for 80% of its total needs in 2008.The company borrowed an additional 15% of its total needs in the long-term debt markets in 2008.What were Calhoun's net new stock issues, in percentage terms, for 2008?

Accepted Answer

A)  -10%
B)  -5%
C)  5%
D)  10%
E)  15%

Question 4

Retained earnings are:

Accepted Answer

A)  the amount of cash that the firm has saved up.
B)  the difference between the net income earned and the dividends paid.
C)  the difference between the market price of the stock and the book value.
D)  the amount of stock repurchased.
E)  None of the above.

Question 5

There are 3 directors' seats up for election.If you own 1,000 shares of stock and you can cast 3,000 votes for a particular director, this is illustrative of:

Accepted Answer

A)  cumulative voting.
B)  absolute priority voting.
C)  sequential voting.
D)  straight voting.
E)  None of the above.

Question 6

Which of the following statements about preferred stock is true?

Accepted Answer

A)  Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.
B)  Unpaid dividends on preferred stock are a debt of the corporation.
C)  If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year.
D)  There is no difference in the voting rights of preferred and common stockholders.
E)  None of the above.

Question 7

If a group other than management solicits the authority to vote shares to replace management, a _____ is said to occur.

Accepted Answer

A)  proxy fight
B)  stockholder derivative action
C)  tender offer
D)  vote of confidence
E)  None of the above.

Question 8

Corporate financial officers prefer to use book values when measuring debt ratios because:

Accepted Answer

A)  book values are more stable than market values.
B)  debt covenant restriction are usually expressed in book value terms.
C)  rating agencies measure debt ratios in book values terms.
D)  All of the above.
E)  None of the above.

Question 9

The book capital of a corporation is determined by:

Accepted Answer

A)  the sum of the capital in excess of par and the retained earnings.
B)  the par value of preferred stock.
C)  the sum of the treasury stock and the preferred stock.
D)  the number of shares issued multiplied by the par value of each share.
E)  the market price of the company's debt.

Question 10

Which of the following statements is false?

Accepted Answer

A)  Creditors do not have voting power.
B)  Payment on interest on debt in considered an expense, while payment of dividends is a return on capital.
C)  Unpaid debt is a liability of the firm, and if not paid, can result in liquidation of the firm.Unpaid common stock dividends cannot force liquidation.
D)  One of the costs of issuing equity is the possibility of financial distress, while no financial distress is associated with debt.
E)  None of the above.

Question 11

The market value of the ownership of the firm equals:

Accepted Answer

A)  the market price of the stock times the number of shares outstanding.
B)  the sum of the market price of the bonds and the stock.
C)  the par value of the stock times the number of shares outstanding.
D)  the market price of the stock minus the retained earnings.
E)  None of the above.

Question 12

What percentage of the dividends received by one corporation from another is taxable?

Accepted Answer

A)  15%
B)  30%
C)  34%
D)  70%
E)  100%

Question 13

Corporations try to create hybrid securities that look like equity but are called debt because:

Accepted Answer

A)  debt interest expense is tax deductible.
B)  bankruptcy costs are eliminated or reduced.
C)  these securities have lower risk than debt.
D)  Both A and C.
E)  Both A and B.

Question 14

Different classes of stock usually are issued to:

Accepted Answer

A)  maintain ownership control by holding the class of stock with greater voting rights.
B)  pay less in dividends between the classes of stock.
C)  fool investors into thinking that equity is equity and there is no difference in control or value features.
D)  extract perquisites without the other class of stockholders knowing.
E)  None of the above.

Question 15

If a debenture is subordinated, it:

Accepted Answer

A)  has a higher priority status than specified creditors.
B)  is secondary to equity.
C)  must give preference to the specified creditor in the event of default.
D)  has been issued because the company is in default.
E)  None of the above.

Question 16

A grant of authority allowing someone else to vote shares of stock that you own is called:

Accepted Answer

A)  a power-of-share authorization.
B)  a proxy.
C)  a share authority grant (SAG) .
D)  a restricted conveyance.
E)  None of the above.

Question 17

Based on historical experience, which of the following best describes the "pecking order" of long-term financing strategy in the U.S.?

Accepted Answer

A)  Long-term debt first, new common equity, internal financing last.
B)  Long-term debt first, internal financing, new common equity last.
C)  Internal financing first, new common equity, long-term borrowing last.
D)  Internal financing first, long-term borrowing, new common equity last.
E)  None of the above.

Question 18

Technically speaking, a long-term corporate debt offering that features a specific attachment to corporate property is generally called:

Accepted Answer

A)  a debenture.
B)  a bond.
C)  a long-term liability.
D)  a preferred liability.
E)  None of the above.

Question 19

The written agreement between a corporation and its bondholders is called:

Accepted Answer

A)  the collateral agreement.
B)  the deed.
C)  the indenture.
D)  the deed of conveyance.
E)  None of the above.

Question 20

Financial economists prefer to use market values when measuring debt ratios because:

Accepted Answer

A)  market values are more stable than book values.
B)  market values are a better reflection of current value than historical value.
C)  market values are readily available and do not have to be calculated like book values.
D)  market values are more difficult to calculate which makes financial economists more valuable.
E)  None of the above.

Exam 15: Long-Term Financing: an Introduction

The market value of the ownership of the firm equals:

Correct AnswerverifiedShow Answer

A grant of authority allowing someone else to vote shares of stock that you own is called:

Correct AnswerverifiedShow Answer

Corporate financial officers prefer to use book values when measuring debt ratios because:

Correct AnswerverifiedShow Answer

Corporations try to create hybrid securities that look like equity but are called debt because:

Correct AnswerverifiedShow Answer

If a debenture is subordinated, it:

Correct AnswerverifiedShow Answer

Retained earnings are:

Correct AnswerverifiedShow Answer

If a group other than management solicits the authority to vote shares to replace management, a _____ is said to occur.

Correct AnswerverifiedShow Answer

Calhoun Computech used internal financing as a source of long-term financing for 80% of its total needs in 2008.The company borrowed an additional 15% of its total needs in the long-term debt markets in 2008.What were Calhoun's net new stock issues, in percentage terms, for 2008?

Correct AnswerverifiedShow Answer

What percentage of the dividends received by one corporation from another is taxable?

Correct AnswerverifiedShow Answer

Technically speaking, a long-term corporate debt offering that features a specific attachment to corporate property is generally called:

Correct AnswerverifiedShow Answer

Which of the following statements about preferred stock is true?

Correct AnswerverifiedShow Answer

The written agreement between a corporation and its bondholders is called:

Correct AnswerverifiedShow Answer

There are 3 directors' seats up for election.If you own 1,000 shares of stock and you can cast 3,000 votes for a particular director, this is illustrative of:

Correct AnswerverifiedShow Answer

Based on historical experience, which of the following best describes the "pecking order" of long-term financing strategy in the U.S.?

Correct AnswerverifiedShow Answer

Debt that may be extinguished before maturity is referred to as:

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Different classes of stock usually are issued to:

Correct AnswerverifiedShow Answer

The Lory Bookstore used internal financing as a source of long-term financing for 80% of its total needs in 2008.The company borrowed an additional 27% of its total needs in the long-term debt markets in 2008.What were Lory's net new stock issues in that year?

Correct AnswerverifiedShow Answer

The book capital of a corporation is determined by:

Correct AnswerverifiedShow Answer

Financial economists prefer to use market values when measuring debt ratios because:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified