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Finance Flashcards

Finance Test 3

Financial instruments in the capital markets generally fall under what category on the balance sheet? a. Short-term liabilities and equitiesb. Long-term liabilities and equitiesc. Near cash assetsd. None of the above b. long term liabilities and equities
The majority of external financing by U.S. corporations is through the sale of a. Common Stockb. Bondsc. Preferred stockd. Options b. Bonds
Corporations prefer bonds over preferred stock for financing their operations becausea. Preferred Stocks require a dividendb. Bond interest rates change with the economy while stock dividends remain constantc. The after-tax cost of debt is less than the cost of preferred stockd. None of the above c. The after-tax cost of debt is less than the cost of preferred stock
In the _____ market, existing securities are exchanged between investors while in the _____ market, participants buy their securities directly from the source of the asseta. Primary, OTCb. Primary, secondaryc. Secondary, primaryd. Prime, sub prime c. Secondary, primary
The purpose of secondary trading is to a. Provide liquidity and pricing for investmentsb. Provide a market for primary tradingc. Provide jobs for brokers and dealersd. Provide lower commissions a. Provide liquidity and pricing for investments
The cause(s) for the increase in corporate debt is/are:a. Rapid business expansionb. Inflationary impactsc. Inadequate internally generated fundsd. All of the above d. All of the above
An indenture isa. The section of a corporation’s bylaws pertaining to bond issuesb. The summary of the essential features of a stock issuec. The contract between a corporation and bondholdersd. The underwriting contract c. The contact between a corporation and bond holders
The term debenture refers toa. Long-term secured debtb. Long-term unsecured debtc. The bond contractd. Protective covenants b. Long-term unsecured debt
A call feature allowsa. The bondholder to redeem the bond before the maturity dateb. The corporation to redeem the bond before the maturity datec. The corporation to convert the bond to common stockd. The bondholder to demand increased collateral b. The corporation to redeem the bond before the maturity date
Prices of existing bonds move _____ as market interest rates move _____a. Down, downb. Up, upc. Up, downd. Bond prices don’t move when market interest rates move c. Up, down
Which of the following is not a true statement?a. Common stockholders have a residual claim to incomeb. Bondholders may force a corporation into bankruptcy for failure to make interest paymentsc. Common stockholders are legally entitled to a dividendd. Stockholders are the owners of the corporation c. Common stockholders are legally entitled to a dividend
Under normal operating conditions, the board of directors is elected by a. The common stockholdersb. The preferred stockholdersc. The bond holdersd. None of the above a. The common stockholders
The purpose of cumulative voting a. To maintain majority control of the board of directorsb. To allow minority stockholders the possibility of a voice on the board of directorsc. To obstruct unfriendly mergers and takeover effortsd. To prevent the dilution of common stock through pre-emptive rights offerings b. To allow minority stockholders the possibility of a voice on the board of directors
Which of the following statements is not true about common stock?a. Common stockholders have a residual claim to incomeb. Common stockholders have a legal claim to dividend incomec. Common stockholders cannot force a company into bankruptcyd. There may be more than one class of common stock b. Common stockholders have legal claim to dividend income
The following are primary purchasers of preferred stock excepta. Corporate investorsb. Insurance companiesc. Pension fundsd. Individual investors d. Individual Investors
A business combination of two or more companies in which the resulting firm maintains the identity of the acquiring company is defined as a a. Consolidationb. Holding companyc. Conglomerated. Merger d. Merger
Synergy is said to occur when the whole isa. Equal to the sum of partsb. Less than the sum of the partsc. Greater than the sum of the partsd. None of the above c. Greater than the sum of the parts
Which of the following is not a motive for selling stock in a company being acquired?a. Opportunity to diversifyb. An attractive pricec. Tax advantaged. None of the above c. Tax advantage
An example of a horizontal merger would bea. Pepsi and Searsb. McDonalds and Pillsburyc. Pepsi and Frito Layd. Coca Cola and Dr. Pepper d. Coca Cola and Dr. Pepper
Selling stockholders in a merger may be willing to part with their shares becausea. The offered shares may be more marketableb. The price they are offered may be above the market valuec. They can attain a greater degree of diversificationd. All of the above d. All of the above
The Majority of external financing is U.S. corporations is through the issuance of:a. Common Stockb. Bondsc. Preferred Stockd. ECNse. Options b. Bonds
The OTC market is primarily regulated by thea. OTCb. NYSEc. SECd. FTCe. NASD e. NASD
The primary benefit provided investors by security markets is:a. Guaranteed returns b. Liquidityc. Riskless tradingd. Costless tradinge. Access to all relevant security information b. Liquidity
The market for securities having maturities of more than one year is called the:a. Intermediate marketb. Money marketc. International marketd. Capital markete. Domestic market d. Capital market
Which of the following owns securities and seeks to earn a profit from buying and selling?a. Brokersb. SECc. OTCd. Dealerse. National Association of Securities Dealers d. Dealers
An issuer may be required to fund the retirement of a bond issue by:a. Conversionb. Call featurec. Mortgage agreementd. Sinking funde. Refunding d. Sinking fund
The legal agreement that details a security issuer’s obligation is called an:a. Indentureb. Trusteec. Covenantd. Pledgee. Assignment a. Indenture
Which type of voting allows minority stockholders to elect some of the directors of a corporation?a. Majorityb. Preferredc. Commond. Cumulativee. Preemptive d. Cumulative
Which of the following has the lowest claim to assets in bankruptcy?a. Common Stockb. Convertible preferred stockc. Preferred stockd. Corporate bondse. Convertible exchangeable preferred stock a. Common Stock
Which of the following statements is correct?a. Preferred stock dividends are tax deductibleb. COmmon stock dividends are tax deductiblec. Seventy percent of intercorporate interest is tax exemptd. The cost of distribution is highest for corporate bonds e. Seventy percent of intercorporate dividends are tax exempt to the receiving firm e. Seventy percent of intercorporate dividends are tax exempt to the receiving firm
A surprise takeover offer made immediately before the market closes for the weekend is calleda. White Knightb. Saturday Night Specialc. Leveraged takeoverd. Poison pille. pooling of interests b. Saturday Night Special
A business combination of two or more firms resulting in a new entity is aa. Mergerb. Acquisitionc. Synergismd. Consolidatione. Purchase of assets d. Consolidation
Which of the following discourages takeover attempts?a. Large cash balances of target firmsb. Business risk reductionc. Financial risk reductiond. Increasing dividends of target firm e. Synergism d. Increasing dividends of target firm
Which of the following is a financial motive for business combination?a. Expansion of marketing capabilities b. Acquisition of new productsc. Attract prestigious investment bankersd. 2+2=5e. Obtain a corporate jet c. Attract prestigious investment bankers
Which of the following is probably the most important nonfinancial motive for a merger?a. Acquisition of new productsb. Synergismc. Portfolio effectd. Expansion of management capabilities e. Tickets to the Super Bowl b. Synergism

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