Question 1

Bondholders never have any control over the actions of a firm.

Accepted Answer

A) True 
 B)False

Question 2

The Nash Corp. is considering four investments. Which provides the highest after-tax return for Nash Corp. if it is in the 40% federal tax bracket? Assume the tax rate on dividends is 15%.

Accepted Answer

A)  Treasury bonds at 4%
B)  Corporate bonds at 7.5%
C)  Municipal bonds at 7.25%
D)  Preferred stock at 7.5%

Question 3

The difference between the rights-on and ex-rights common stock price is equal to the value of a right, all other things being equal.

Accepted Answer

A) True 
 B)False

Question 4

Common stockholders have a residual claim to income, in other words they are last in line.

Accepted Answer

A) True 
 B)False

Question 5

Common stockholders have a legal claim to dividend income.

Accepted Answer

A) True 
 B)False

Question 6

Investors are usually in favor of poison pills because they prevent takeovers.

Accepted Answer

A) True 
 B)False

Question 7

A rights offering

Accepted Answer

A)  gives a firm a built-in market for new securities.
B)  will likely lead to considerably higher distribution costs.
C)  will increase the shareholder's total valuation.
D)  is the least expensive way to raise capital.

Question 8

The "convertible exchangeable" feature of preferred shares gives the holder the sole right to exchange their preferred stock for common stock.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is NOT a disadvantage of ADRs?

Accepted Answer

A)  Foreign currency exchange risk
B)  Financial statements written in a foreign language
C)  Information lag
D)  Less frequent reporting of financial results

Question 10

Which of the following is not a true statement?

Accepted Answer

A)  Common stockholders have a residual claim to income.
B)  Bondholders may force a corporation into bankruptcy for failure to make interest payments.
C)  Common stockholders are legally entitled to some dividend.
D)  A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock.

Question 11

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% federal tax bracket? Assume the tax rate on dividends is 15%.

Accepted Answer

A)  Treasury bonds at 5.0%
B)  Corporate bonds at 8.0%
C)  Municipal bonds at 5.0%
D)  Preferred stock at 6.0%

Question 12

Match between columns
                        Premises: Stock issued to original owners of the company that often carry special voting privileges in excess of their proportionate ownership.
Rights offering made to existing shareholders for the sole purpose of making it more difficult for an outside firm to acquire the company.
These allow a company to force conversion from convertible preferred stock into convertible debt.
All income that is not paid out to creditors or preferred stockholders automatically belongs to common stockholders.
This is similar to floating rate preferred stock but is a short-term instrument that matures every seven weeks and is sold at a subsequent bidding.
Refers to the possibility of receiving additional dividend payments over and above the stated amount to be paid on this type of security.
Assures holders of this security that they will receive all dividends due to them before dividends are paid to other types of dividend-paying security holders.
Assigning voting rights to management, directors, or another outside group.
Type of equity security with an obligatory dividend paid at a rate that is adjusted periodically to reflect current market conditions.

Accepted Answer

The Answer of founders' shares and residual claim to income is...

Question 13

Some preferred stocks are "participating preferreds," allowing for an increase in the preferred stock dividend when the common stock dividend equals the preferred stock dividend, and additional payouts then occur.

Accepted Answer

A) True 
 B)False

Question 14

ADRs are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Accepted Answer

A) True 
 B)False

Question 15

Krager Foods Corp. has 650,000 shares outstanding. General Grocery, one of its subsidiaries, is disgusted with current management practices and is trying to get some of its own people elected to the board of directors. There are 12 directors, and General Grocery owns 60,000 shares.
a) Under cumulative voting, how many directors can General Grocery elect?
b) How many shares will General Grocery have to acquire in order to elect seven directors?

Accepted Answer

a). Number of directors = <img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> Number of dir...

Question 16

Occasionally, a company will have several classes of common stock, with each class carrying different rights to dividends and income.

Accepted Answer

A) True 
 B)False

Question 17

Five rights are necessary to purchase one share of Fogel stock at $50. A right sells for $4. The ex-rights value of Fogel stock is _______.

Accepted Answer

A)  $70
B)  $46
C)  $74
D)  None of these options

Question 18

If a corporate charter includes a provision for preemptive rights, the stockholders

Accepted Answer

A)  must sell their stock to the company.
B)  get first option to buy additional issues of common stock.
C)  may purchase existing treasury stock.
D)  cannot utilize cumulative voting procedures.

Question 19

After a rights offering, the common stock price will sell at the subscription price.

Accepted Answer

A) True 
 B)False

Question 20

The par value on a preferred stock entitles the holder to

Accepted Answer

A)  priority on all cumulative dividends.
B)  an established amount of money if the company is liquidated.
C)  a minimum amount of convertible common stock.
D)  None of these options

Exam 17: Common and Preferred Stock Financing

Correct Answer
verified
a). Number of directors = Number of dir...
View Answer

ADRs are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Correct Answer
verified

Bondholders never have any control over the actions of a firm.

Correct Answer
verified

If a corporate charter includes a provision for preemptive rights, the stockholders

Correct Answer
verified

Investors are usually in favor of poison pills because they prevent takeovers.

Correct Answer
verified

Five rights are necessary to purchase one share of Fogel stock at $50. A right sells for $4. The ex-rights value of Fogel stock is _______.

Correct Answer
verified

The Nash Corp. is considering four investments. Which provides the highest after-tax return for Nash Corp. if it is in the 40% federal tax bracket? Assume the tax rate on dividends is 15%.

Correct Answer
verified

The "convertible exchangeable" feature of preferred shares gives the holder the sole right to exchange their preferred stock for common stock.

Correct Answer
verified

After a rights offering, the common stock price will sell at the subscription price.

Correct Answer
verified

Some preferred stocks are "participating preferreds," allowing for an increase in the preferred stock dividend when the common stock dividend equals the preferred stock dividend, and additional payouts then occur.

Correct Answer
verified

A rights offering

Correct Answer
verified

Which of the following is not a true statement?

Correct Answer
verified

Common stockholders have a legal claim to dividend income.

Correct Answer
verified

Which of the following is NOT a disadvantage of ADRs?

Correct Answer
verified

The par value on a preferred stock entitles the holder to

Correct Answer
verified

The difference between the rights-on and ex-rights common stock price is equal to the value of a right, all other things being equal.

Correct Answer
verified

Common stockholders have a residual claim to income, in other words they are last in line.

Correct Answer
verified

Match the following with the items below:

Occasionally, a company will have several classes of common stock, with each class carrying different rights to dividends and income.

Correct Answer
verified

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% federal tax bracket? Assume the tax rate on dividends is 15%.

Correct Answer
verified

Exam 17: Common and Preferred Stock Financing

Correct Answerverifieda). Number of directors = Number of dir...View AnswerShow Answer

ADRs are subject to foreign exchange risk unlike direct methods of investing in the foreign exchange market.

Correct AnswerverifiedShow Answer

Bondholders never have any control over the actions of a firm.

Correct AnswerverifiedShow Answer

If a corporate charter includes a provision for preemptive rights, the stockholders

Correct AnswerverifiedShow Answer

Investors are usually in favor of poison pills because they prevent takeovers.

Correct AnswerverifiedShow Answer

Five rights are necessary to purchase one share of Fogel stock at $50. A right sells for $4. The ex-rights value of Fogel stock is _______.

Correct AnswerverifiedShow Answer

The Nash Corp. is considering four investments. Which provides the highest after-tax return for Nash Corp. if it is in the 40% federal tax bracket? Assume the tax rate on dividends is 15%.

Correct AnswerverifiedShow Answer

The "convertible exchangeable" feature of preferred shares gives the holder the sole right to exchange their preferred stock for common stock.

Correct AnswerverifiedShow Answer

After a rights offering, the common stock price will sell at the subscription price.

Correct AnswerverifiedShow Answer

Some preferred stocks are "participating preferreds," allowing for an increase in the preferred stock dividend when the common stock dividend equals the preferred stock dividend, and additional payouts then occur.

Correct AnswerverifiedShow Answer

A rights offering

Correct AnswerverifiedShow Answer

Which of the following is not a true statement?

Correct AnswerverifiedShow Answer

Common stockholders have a legal claim to dividend income.

Correct AnswerverifiedShow Answer

Which of the following is NOT a disadvantage of ADRs?

Correct AnswerverifiedShow Answer

The par value on a preferred stock entitles the holder to

Correct AnswerverifiedShow Answer

The difference between the rights-on and ex-rights common stock price is equal to the value of a right, all other things being equal.

Correct AnswerverifiedShow Answer

Common stockholders have a residual claim to income, in other words they are last in line.

Correct AnswerverifiedShow Answer

Match the following with the items below:

Occasionally, a company will have several classes of common stock, with each class carrying different rights to dividends and income.

Correct AnswerverifiedShow Answer

The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% federal tax bracket? Assume the tax rate on dividends is 15%.

Correct AnswerverifiedShow Answer

Correct Answer
verified
a). Number of directors = Number of dir...
View Answer

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