Question 1

If variable costs = $10.00 per unit; and the selling price = $13.00 per unit, and the break-even point in units = 100,000, calculate the fixed costs.

Accepted Answer

A)   $4,348
B)   $50,000
C)   $300,000
D)   $33,333

Question 2

Explain how a firm can establish its optimal capital structure.

Accepted Answer

Financial managers seek the capital stru...

Question 3

Which of the following statements is true?

Accepted Answer

A)   The optimal capital structure can be determined using a complicated formula and managerial expertise.
B)   Leveraged buyouts decrease bondholder (creditor)  risk.
C)   The interest payment tax shield lowers the cost of debt.
D)   The risk on debt for investors is higher than the risk on equity.

Question 4

The call price will exceed the par value by an amount called:

Accepted Answer

A)   the percentage of price.
B)   the redemption price.
C)   the call premium.
D)   the call discount.

Question 5

The exercise value of a warrant is:

Accepted Answer

A)   the amount saved by purchasing the common stock by exercising the warrant rather than selling the common stock directly to investment bankers.
B)   the amount saved by purchasing the common stock by exercising the warrant rather than buying the common stock in the open market.
C)   the amount saved by purchasing the common stock by selling the warrant rather than selling the common stock directly in the open market.
D)   the amount saved by purchasing the common stock by exercising the warrant rather than selling the common stock in the open market.

Question 6

If Firm A has a greater variability in operating earnings than Firm B , which firm has the lower DOL?

Accepted Answer

A)   Firm X
B)   Firm Y
C)   DOL is equal for both.
D)   There is no way to tell from the information given.

Question 7

A stock is traded rights on; the market price per share of the common stock is $100; the subscription price is $80; and the number of rights needed to buy a new share is 19. Calculate the approximate value of a right.

Accepted Answer

A)   $1.00
B)   $1.05
C)   $3.00
D)   $2.00

Question 8

The current market price of a rights-on stock is $90.00. The subscription price is $81.00. The number of rights required to purchase one new share is 8. What is the approximate market price is one right?

Accepted Answer

A)   $1.00
B)   $0.88
C)   $1.25
D)   $1.13

Question 9

As a firm moves to a capital structure with higher debt:

Accepted Answer

A)   financial risk of the firm decreases if interest payments are tax deductible.
B)   financial risk of the firm is unaffected if interest payments are tax deductible.
C)   financial risk of the firm increases.
D)   DOL increases.

Question 10

The text states that a company may chose to use the call provision and refund a bond issue even if the refunding does not have a positive net present value. What is the most likely reason this would happen. Be specific.

Accepted Answer

The bond indenture on the current issue ...

Question 11

A firm has a rights offering with a record date of Thursday, April 24, and and expiration date of Friday, May 31. You buy the stock on Friday April 25. You will be able to exercise the rights:

Accepted Answer

A)   Friday, May 31.
B)   Any day before May 31.
C)   It depends on the exercise price.
D)   You will not own the rights.

Question 12

Which of the following is false?

Accepted Answer

A)   Public corporations have a board of directors; private corporations do not.
B)   Private corporations are exempt from SEC filings.
C)   Public corporations typically have many more shareholders that are not involved in running the corporation.
D)   Private corporations are generally smaller than public corporations.

Question 13

A signal that is likely to be inferred by the market when new common stock is issued is:

Accepted Answer

A)   prospects of the firm are better than generally believed.
B)   prospects of the firm are worse than generally believed.
C)   the firm is preparing for a new debt issue.
D)   new management or directors of the board are being put in place.

Question 14

Why would an investor use put options to protect the value of a shareholding they currently own?

Accepted Answer

If a shareholder has a holding they woul...

Question 15

Describe the difference between a preemptive right and a warrant.

Accepted Answer

A preemptive right gives the holder the ...

Question 16

A stock is trading ex-rights; the market price per share of common stock is $75; the number of rights needed to buy one new share is 3, and the value of a right is 5. Calculate the subscription price.

Accepted Answer

A)   70
B)   65
C)   80
D)   60

Question 17

The holder of a call option:

Accepted Answer

A)   has the right to sell shares at a predetermined price on or before the expiry date.
B)   agrees to buy shares at a predetermined price on or before the expiry date
C)   agrees to sell shares at a predetermined price on or before the expiry date.
D)   has the right to buy shares at a predetermined price on or before the expiry date.

Question 18

Calculate DFL.

Accepted Answer

A)   1.00
B)   1.67
C)   1.12
D)   1.05

Question 19

With respect to preferred stock, if a dividend is missed and must be paid at a later date before Common Share dividends are paid, it is:

Accepted Answer

A)   a fixed payment preferred stock.
B)   a cumulative preferred stock.
C)   a rarely used feature.
D)   a continuous preferred stock.

Question 20

A right is no longer valuable after:

Accepted Answer

A)   the ex rights date.
B)   the expiration date.
C)   the rights on date.
D)   the purchase date.

Exam 5: Long-Term Financing Decisions

A firm has a rights offering with a record date of Thursday, April 24, and and expiration date of Friday, May 31. You buy the stock on Friday April 25. You will be able to exercise the rights:

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The call price will exceed the par value by an amount called:

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Explain how a firm can establish its optimal capital structure.

Correct AnswerverifiedFinancial managers seek the capital stru...View AnswerShow Answer

The exercise value of a warrant is:

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The holder of a call option:

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A right is no longer valuable after:

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If Firm A has a greater variability in operating earnings than Firm B , which firm has the lower DOL?

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If variable costs = $10.00 per unit; and the selling price = $13.00 per unit, and the break-even point in units = 100,000, calculate the fixed costs.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

A stock is trading ex-rights; the market price per share of common stock is $75; the number of rights needed to buy one new share is 3, and the value of a right is 5. Calculate the subscription price.

Correct AnswerverifiedShow Answer

A signal that is likely to be inferred by the market when new common stock is issued is:

Correct AnswerverifiedShow Answer

Why would an investor use put options to protect the value of a shareholding they currently own?

Correct AnswerverifiedIf a shareholder has a holding they woul...View AnswerShow Answer

A stock is traded rights on; the market price per share of the common stock is $100; the subscription price is $80; and the number of rights needed to buy a new share is 19. Calculate the approximate value of a right.

Correct AnswerverifiedShow Answer

The text states that a company may chose to use the call provision and refund a bond issue even if the refunding does not have a positive net present value. What is the most likely reason this would happen. Be specific.

Correct AnswerverifiedThe bond indenture on the current issue ...View AnswerShow Answer

Describe the difference between a preemptive right and a warrant.

Correct AnswerverifiedA preemptive right gives the holder the ...View AnswerShow Answer

The current market price of a rights-on stock is $90.00. The subscription price is $81.00. The number of rights required to purchase one new share is 8. What is the approximate market price is one right?

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Calculate DFL.

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With respect to preferred stock, if a dividend is missed and must be paid at a later date before Common Share dividends are paid, it is:

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Which of the following is false?

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As a firm moves to a capital structure with higher debt:

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Financial managers seek the capital stru...
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If a shareholder has a holding they woul...
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The bond indenture on the current issue ...
View Answer

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A preemptive right gives the holder the ...
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Correct Answer
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Correct Answer
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