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1、Chapter 15 Long-Term Financing: An IntroductionMultiple Choice Questions1. The book capital of a corporation is determined by: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 numbe

2、r of shares issued multiplied by the par value of each share.E. the market price of the company's debt.2. Retained earnings are: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 th

3、e stock and the book value.D. the amount of stock repurchased.E. None of the above.3. The book value of the shareholders' ownership is represented by:A. the sum of the par value of common stock, the capital surplus and the accumulated retained earnings.B. the total assets minus the net worth.C.

4、the sum of the preferred stock, debt and the capital surplus.D. the sum of the total assets minus the current liabilities.E. None of the above.4. Shares of stock that have been repurchased by the corporation are called:A. treasury stock.B. undistributed capital stock.C. retained equity.D. capital su

5、rplus shares.E. None of the above.5. The market value of the ownership of the firm equals: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 mark

6、et price of the stock minus the retained earnings.E. None of the above.6. A grant of authority allowing someone else to vote shares of stock that you own is called:A. a power-of-share authorization.B. a proxy.C. a share authority grant (SAG).D. a restricted conveyance.E. None of the above.7. Unsecur

7、ed corporate debt is called a(n):A. indenture.B. debenture.C. bond.D. mortgage.E. None of the above.8. A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into a(n):A. custodial account.B. sinking fund.C. retirement fund.D. irrevocab

8、le trustee fund.E. None of the above9. Debt that may be extinguished before maturity is referred to as:A. sinking-fund debt.B. debentures.C. callable debt.D. indenture debt.E. None of the above.10. If a long-term debt instrument is perpetual, it is called a(n):A. secured debt issue.B. subordinated d

9、ebt issue.C. consol.D. capital debt issue.E. indenture.11. The amount of loan a person or firm borrows from a lender is the:A. creditor.B. indenture.C. debenture.D. principal.E. amortization.12. The written agreement between a corporation and its bondholders is called:A. the collateral agreement.B.

10、the deed.C. the indenture.D. the deed of conveyance.E. None of the above.13. If cumulative voting is permitted:A. the total number of votes a shareholder has is equal to the number of shares owned.B. the total number of votes a shareholder has is equal to the number of shares owned times the average

11、 number of years the shareholder has owned the shares.C. the total number of votes a shareholder has can be calculated as the number of shares owned times the number of directors to be elected.D. the total number of votes a shareholder has is equal to the number of shares times the number of board m

12、eetings the shareholder has attended.E. None of the above.14. The market-to-book value ratio is implies growth and success when it is:A. greater than 0.B. less than 10.C. less than 0.D. less than 1.E. greater than 1.15. There are 3 directors' seats up for election. If you own 1,000 shares of sto

13、ck and you can cast 3,000 votes for a particular director, this is illustrative of:A. cumulative voting.B. absolute priority voting.C. sequential voting.D. straight voting.E. None of the above.16. If you own 1,000 shares of stock and you can cast only 1,000 votes for a particular director, then the

14、stock features:A. cumulative voting.B. absolute priority voting.C. sequential voting.D. straight voting.E. None of the above.17. If a group other than management solicits the authority to vote shares to replace management, a is said to occur.A. proxy fightB. stockholder derivative actionC. tender of

15、ferD. vote of confidenceE. None of the above.18. Shareholders usually have which of the following right(s)A. To elect board members, the authorizing of new shares and other matters of great importance to shareholders such as being acquired.B. To share proportionally in regular and liquidating divide

16、nds.C. To share proportionally in any new stock sold.D. All of the above.19. Different classes of stock usually are issued to: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 t

17、hat 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.20. Which of the following statements is falseA. Creditors do not have voting power.B. Payment on interest on debt in considered an

18、 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

19、no financial distress is associated with debt.21. Corporations try to create hybrid securities that look like equity but are called debt because: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. B

20、oth A and B.22. Technically speaking, a long-term corporate debt offering that features a specific attachment to corporate property is generally called:A. a debenture.B. a bond.C. a long-term liability.D. a preferred liability.E. None of the above.23. If a firm retires or extinguishes a debt issue b

21、efore maturity, the specific amount they pay is:A. the amortization amount.B. the call price.C. the sinking fund amount.D. the spread premium.E. None of the above.24. If a debenture is subordinated, it:A. has a higher priority status than specified creditors.B. is secondary to equity.C. must give pr

22、eference to the specified creditor in the event of default.D. has been issued because the company is in default.E. None of the above.25. Not paying the dividends on a cumulative preferred issue may result in:A. preferred dividend arrears that can be eliminated by the common shareholders only after c

23、ommon dividends are paid.B. voting rights are granted to preferred stockholders if preferred dividends are in arrears.C. no payment of dividends to common shareholders.D. Both A and B.E. Both B and C.26. Preferred stock has both a tax advantage and a tax disadvantage. These two are:A. in default the

24、re are no taxes and dividends are taxed in corporate hands at 70%.B. corporate dividends are taxed on 30% of the dividends received and expenses are deductible.C. dividends are not a tax-deductible expense but are 70% exempt from corporate taxation.D. dividends are fully tax deductible but are not e

25、quity capital.27. Preferred stock may be desirable to issue for which of the following reason(s)A. If there is no taxable income, preferred stock does not impose a tax penalty.B. The failure to pay preferred dividends, cumulative or noncumulative, will not cause bankruptcy.C. Preferred dividends are

26、 not tax deductible and therefore will not provide a tax shield but will reduce net income.D. Both B and C.E. Both A and B.28. Preferred stock may exist because:A. losses before income taxes prevent a company from enjoying the tax advantages of debt interest while there is no tax advantage for prefe

27、rred dividends.B. an advantage exists for the firm; preferred shareholders can not force the company into bankruptcy because of unpaid dividends.C. corporations get a 70% tax exemption on preferred dividends received.D. All of the above.E. None of the above.29. The written agreement between a corpor

28、ation and its bondholders might contain a prohibition against paying dividends in excess of current earnings. This prohibition is an example of a(n):A. maintenance of security provision.B. collateral restriction.C. affirmative indenture.D. restrictive covenant.E. None of the above.30. What percentag

29、e of the dividends received by one corporation from another is taxableA. 15%B. 30%C. 34%D. 70%E. 100%31. Which of the following statements about preferred stock is trueA. Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.B. Unpaid dividends on pref

30、erred 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.32. If a de

31、bt issue is callable, the call price is generally par.A. greater thanB. less thanC. equal toD. unrelated toE. It varies widely based on the risk of the firm.33. There was an upward trend in the ratio of the book value of debt to the book value of debt and equity throughout the 1990s. Some of this wa

32、s due to the repurchasing of stock. The market value ratio of debt to debt and equity exhibited no upward trend. This can be explained by:A. the change in the accounting rules of the period.B. the difference between tax accounting and accounting for financial accounting purposes.C. a large increase

33、in the market value of equity that was greater than the increase in debt.D. All of the above.E. None of the above.34. Based on historical experience, which of the following best describes the "pecking order" of long-term financing strategy in the .A. Long-term debt first, new common equity

34、, 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.35. Financial deficits are created when

35、:A. profits and retained earnings are greater than the capital-spending requirement.B. profits and retained earnings are less than the capital-spending requirement.C. profits and retained earnings are equal to the capital-spending requirement.D. All of the above.E. None of the above.36. Financial ec

36、onomists prefer to use market values when measuring debt ratios because: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

37、 values are more difficult to calculate which makes financial economists more valuable.E. None of the above.37. Corporate financial officers prefer to use book values when measuring debt ratios because:A. book values are more stable than market values.B. debt covenant restriction are usually express

38、ed in book value terms.C. rating agencies measure debt ratios in book values terms.D. All of the above.E. None of the above.38. Rockwell Corporation had net income of $150,000 for the year ending 2008. The company decided to payout 40% of earnings per share as a dividend. Rockwell has 120,000 shares

39、 issued and outstanding. What are the retained earnings for 2008A. $40,000B. $60,000C. $90,000D. $150,000E. None of the above39. Nels on Compa ny had equity acco unts in 2008 as follows:$120,000$152,000Common Stock (Si P；ir Talue)Rehtind EarningsTotal Shareholder EquityProjected in come is $150,000

40、and 40% of this amount will be paid out immediately as divide nds. What will the ending reta ined earnings acco unt beA. $90,000B. $92,000C. $122,000D. $210,000E. $242,00040. Holden Bicycles has 1,000 shares outstanding each with a par value of $. If they are sold to shareholders at $10 each, what w

41、ould the capital surplus beA. $100B. $900C. $9,900D. $10,000E. $11,00041. 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&

42、#39;s net new stock issues in that yearA. -20%B. -7%C. 7%D. 20%E. 27%42. David's Building Equipment (DBE) had net income of $200,000 for the year ending 2008. The company decided to payout 30% of earnings per share as a dividend. DBE has 50,000 shares issued and outstanding. What are the retaine

43、d earnings for 2008A. $60,000B. $140,000C. $150,000D. $200,000E. None of the above.43. Alexa ndra Inv estme nts had equity acco unts in 2008 as follows:S2OJIO05270,000Common Stock ($1 Par Value) Retained FurnjngSShareholder1 EquityProjected in come is $200,000 and 20% of this amount will be paid out

44、 immediately as divide nds. What will the ending reta ined earnings acco unt beA. $160,000B. $250,000C. $270,000D. $410,000E. $470,00044. Michael's Motor Scooters has 1,000 shares outsta nding each with a par value of $. If they are sold to shareholders at $5 each, what would the capital surplus

45、 beA. $4,400B. $4,500C. $4,750D. $4,950E. $5,00045. 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

46、issues, in percentage terms, for 2008A. -10%B. -5%C. 5%D. 10%E. 15%Essay Questions$ 350,000 0 7,800,000In formatio n on shareholder's equity as curre ntly show n on the books of the Eat on Corporati on is give n as:Common shares (S2.00 par value)("npitl in Excess of ParRe hi incd Eiirnings4

47、6. From this in formati on, calculate Eato n's book value per share.47. Rework the shareholder's equity as it appears on the books if the company issues 40,000 new shares of com mon at $70 per share.48. Preferred Stock, as a hybrid security, prese nts somewhat of a puzzle as to why they are

48、issued. What eleme nts give rise to the puzzle and how is it expla ined49. Different countries have different sources of funds. For example, in the United States, internally generated funds count for over 4/5 of all funds while in Japan, it is about ? with externally generated funds making up the re

49、mainder. The disparities are less in the United Kingdom and Germany, with about 2/3 of funds coming from internal sources. Discuss this disparity and why it might exist.Chapter 15 Lon g-Term Financing: An In troductiorA nswer KeyMultiple Choice Questions1. The book capital of a corporation is determ

50、ined by:A. the sum of the capital in excess of par and the reta ined earnin gs.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 compa ny's debt.Difficul

51、ty level: EasyTopic: BOOK CAPITALType: DEFINITIONS2. Reta ined earnings are:A. the amount of cash that the firm has saved up.B. the differe nee betwee n the n et in come earned and the divide nds paid.C. the differe nee betwee n the market price of the stock and the book value.D. the amount of stock

52、 repurchased.E. None of the above.Difficulty level: EasyTopic: RETAINED EARNINGSType: DEFINITIONS3. The book value of the shareholders' own ership is represe nted by:A the sum of the par value of com mon stock, the capital surplus and the accumulated reta ined earnin gs.B. the total assets minus

53、 the net worth.C. the sum of the preferred stock, debt and the capital surplus.D. the sum of the total assets minus the curre nt liabilities.E. None of the above.Di fficulty level: MediumTopic: BOOK VALUEType: DEFINITIONSDifficulty level: EasyTopic: TREASURY STOCKType: DEFINITIONS4. Shares of stock

54、that have bee n repurchased by the corporatio n are called:A treasury stock.B. un distributed capital stock.C. retai ned equity.D. capital surplus shares.E. None of the above.5. The market value of the own ership of the firm equals:A the market price of the stock times the number of shares outstandi

55、ng.B. the sum of the market price of the bonds and the stock.C. the par value of the stock times the nu mber of shares outsta nding.D. the market price of the stock minus the retained earnings.E. None of the above.Difficulty level: EasyTopic: MARKET VALUE OF EQUITYType: DEFINITIONS6. A grant of auth

56、ority allowi ng some one else to vote shares of stock that you own is called:A. a power-of-share authorizati on.B. a proxy.C. a share authority grant (SAG).D. a restricted con veya nee.E. None of the above.Difficulty level: EasyTopic: PROXYType: DEFINITIONS7. Un secured corporate debt is called a(n)

57、:A. inden ture.B. debe nture.C. bon d.D. mortgage.E. None of the above.Difficulty level: EasyTopic: DEBENTUREType: DEFINITIONS8. A standard arrangement for the orderly retirement of Iong-term debt calls for the corporatio n to make regular payme nts into a(n):A. custodial acco unt.B. sinking fund.C. retireme nt fund.D. irrevocable trustee fund.E. None of the aboveDifficulty level: EasyTopic: SINKING FUNDType: DEFINITIONS9. Debt that may be ext in guished before maturity is refe