Question 1

When calculating net present value for a bond refunding calculation, all of the following are considered either outflows or inflows EXCEPT:

Accepted Answer

A)   Cost savings with the new interest rates.
B)   Net loss from underwriting cost on old issue.
C)   Net cost of underwriting expense on new issue.
D)   Net cost of call premium.

Question 2

The greater use of debt by corporations since the late 1970s is best shown by the

Accepted Answer

A)   declining "times interest covered" ratio.
B)   small amount of common stock sold.
C)   rising cost of interest.
D)   inability of earnings to keep up with inflation.

Question 3

Which of the following represents an inflow in a bond refunding decision?

Accepted Answer

A)   The call premium
B)   The write-off of underwriting cost
C)   The cost savings from lower interest rates
D)   Two of the options are correct

Question 4

Debentures are commonly issued by small companies.

Accepted Answer

A) True 
 B)False

Question 5

Many companies try to maintain investment grade status due to the significant yield differential when rated with a junk-bond status.

Accepted Answer

A) True 
 B)False

Question 6

In general, how often are floating rate bonds adjusted to meet the market conditions?

Accepted Answer

A)   Daily
B)   Weekly
C)   Monthly or Quarterly
D)   Annually

Question 7

Investors consider which of the following to be the most important measure of bond returns?

Accepted Answer

A)   The coupon rate
B)   The yield to maturity
C)   The current yield
D)   None of these options

Question 8

The disadvantages of debt to the corporation include all but which of the following?

Accepted Answer

A)   Debt may have to be paid back with "cheaper" dollars because of inflation.
B)   Interest and principal payments must be met regardless of performance results.
C)   Indenture agreements may place burdensome restrictions on the firm.
D)   Too much debt may depress the firm's stock price.

Question 9

The coupon rate is the actual interest that the seller pays, which may not equal the amount that the seller incurs for an expense.

Accepted Answer

A) True 
 B)False

Question 10

Long-term bond prices are more volatile than short-term bond prices, given an equal percentage change in the interest rate.

Accepted Answer

A) True 
 B)False

Question 11

In an inflationary economy, debt is adjusted for inflation and must be paid back with "more expensive dollars."

Accepted Answer

A) True 
 B)False

Question 12

A debenture represents

Accepted Answer

A)   debt not secured by a specific asset.
B)   secured debt.
C)   a long document covering every detail of a bond issue.
D)   debt that is subordinate to preferred stock.

Question 13

A corporation's underwriting cost on a newly issued bond

Accepted Answer

A)   is an immediate outflow and immediate tax write-off.
B)   is an immediate tax write-off with a deferred outflow.
C)   is a deferred outflow and deferred tax write-off.
D)   is an immediate outflow and deferred tax write-off.

Question 14

The call premium tends to increase with the passage of time.

Accepted Answer

A) True 
 B)False

Question 15

During a default situation, a bondholder is better off with a secured loan because debenture bonds don't give the bondholder any protection.

Accepted Answer

A) True 
 B)False

Question 16

A challenge for multinational corporations is trying to get the right financing for certain operating activity expectations.

Accepted Answer

A) True 
 B)False

Question 17

The benefits of debt to the corporation include all of the following EXCEPT

Accepted Answer

A)   Tax-deductible interest payments
B)   Increases the stock value when used heavily
C)   Fixed obligation
D)   Generally a lower overall cost than equity

Question 18

Homebuilding companies, like D.R. Horton Inc., realized significant losses in 2008-2009, but have realized gains since then.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements regarding the June 2009 bankruptcy of General Motors (GM)  is false?

Accepted Answer

A)   The government provided more than $50 billion in the bailout.
B)   The common stockholders received no cash.
C)   The U.S. government still owns some of the common stock of GM as of 2014.
D)   The secured debtholders were paid off in full.

Question 20

Refunding a bond occurs when the company sells more bonds of the same series with maturity and a coupon equal to the bonds sold earlier.

Accepted Answer

A) True 
 B)False

Exam 16: Long-Term Debt and Lease Financing

In general, how often are floating rate bonds adjusted to meet the market conditions?

Correct AnswerverifiedShow Answer

A corporation's underwriting cost on a newly issued bond

Correct AnswerverifiedShow Answer

The benefits of debt to the corporation include all of the following EXCEPT

Correct AnswerverifiedShow Answer

When calculating net present value for a bond refunding calculation, all of the following are considered either outflows or inflows EXCEPT:

Correct AnswerverifiedShow Answer

Which of the following statements regarding the June 2009 bankruptcy of General Motors (GM) is false?

Correct AnswerverifiedShow Answer

Long-term bond prices are more volatile than short-term bond prices, given an equal percentage change in the interest rate.

Correct AnswerverifiedShow Answer

The call premium tends to increase with the passage of time.

Correct AnswerverifiedShow Answer

The disadvantages of debt to the corporation include all but which of the following?

Correct AnswerverifiedShow Answer

During a default situation, a bondholder is better off with a secured loan because debenture bonds don't give the bondholder any protection.

Correct AnswerverifiedShow Answer

A debenture represents

Correct AnswerverifiedShow Answer

Homebuilding companies, like D.R. Horton Inc., realized significant losses in 2008-2009, but have realized gains since then.

Correct AnswerverifiedShow Answer

Which of the following represents an inflow in a bond refunding decision?

Correct AnswerverifiedShow Answer

Many companies try to maintain investment grade status due to the significant yield differential when rated with a junk-bond status.

Correct AnswerverifiedShow Answer

The coupon rate is the actual interest that the seller pays, which may not equal the amount that the seller incurs for an expense.

Correct AnswerverifiedShow Answer

Refunding a bond occurs when the company sells more bonds of the same series with maturity and a coupon equal to the bonds sold earlier.

Correct AnswerverifiedShow Answer

The greater use of debt by corporations since the late 1970s is best shown by the

Correct AnswerverifiedShow Answer

In an inflationary economy, debt is adjusted for inflation and must be paid back with "more expensive dollars."

Correct AnswerverifiedShow Answer

Investors consider which of the following to be the most important measure of bond returns?

Correct AnswerverifiedShow Answer

A challenge for multinational corporations is trying to get the right financing for certain operating activity expectations.

Correct AnswerverifiedShow Answer

Debentures are commonly issued by small companies.

Correct AnswerverifiedShow Answer

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