Question 1 (1 point) Security markets provide liquidity Question 1 options: A) by allowing corporations to raise funds by selling new issues. B) by creating a market in which owners may easily turn an investment into cash through its sale. C) a and b are both correct. D) neither a nor b are correct. Question 2 (1 point) Corporations prefer bonds over preferred stock for financing their operations because Question 2 options: A) preferred stocks require a dividend B) bond interest rates change with the economy while stock dividends remain constant C) the after-tax cost of debt is less than the cost of preferred stock. D) none of these. Question 3 (1 point) The efficient market hypothesis has several forms. The weak form states that Question 3 options: A) last price data is unrelated to future prices. B) prices reflect all public information. C) all information both public and private is immediately reflected in stock prices. D) none of these Question 4 (1 point) The semi-strong form of the efficient market hypothesis states that Question 4 options: A) past price data is unrelated to future prices. B) prices reflect all public information. C) all information both public and private is immediately reflected in stock prices. D) none of these. Question 5 (1 point) Research has generally indicated that which Efficient Market hypothesis is clearly not correct? Question 5 options: A) Weak B) Semi-strong C) Strong D) Two of the above Question 6 (1 point) All of the following are disadvantages of going public except Question 6 options: A) the firm may now become active in mergers and acquisitions. B) the company must make all information available to the public through filings to the SEC and the state. C) an erosion of value may take place after the initial offering. D) there is a high cost associated with going public. Question 7 (1 point) Which of the following is not a key role of an investment banker? Question 7 options: A) Market maker B) Underwriter C) Acting as transfer agent D) Agent in private placement Question 8 (1 point) All of the following are advantages of going public except Question 8 options: A) more funds are available to publicly-traded firms. B) the fact that a company is public helps in bank negotiations and marketing. C) publicly-traded stocks afford the stockholders more liquidity. D) the firm disseminates more information to the public on corporate affairs. Question 9 (1 point) Dilution of earnings occurs because Question 9 options: A) a new issue of common stock creates more shares outstanding which reduces earnings per share temporarily. B) the company suffers a decline in earnings after taxes. C) the investment banker collects an underwriting fee. D) all of these. Question 10 (1 point) In issuing stock the term “spread” refers to Question 10 options: A) the profit the managing investment banker gets for an issue of stock. B) the disparity between the initial asking price and the average price for the stock issued some months later. C) the difference between what the corporation gets for new issues of stock and what the public pays for the stock. D) the total cost to the corporation for issuing new stock. Question 11 (1 point) Newdex has net income of $2 500 000 and 1 000 000 shares outstanding. It needs to raise $3 610 000 in funds for a new asset. Its investment banker plans to sell an issue of common stock to the public for $40 per share less a spread of 5%. How much must Newdex’s after-tax income increase to prevent dilution of EPS? Question 11 options: A) $40 000 B) $237 500 C) $250 000 D) none of these Question 12 (1 point) Maxwell Corp. is coming to the market with a new offering of 300 000 shares of stock at $25 to the public. Maxwell will received $22 per share. The firm has 1 million shares outstanding and earnings of $6 million. What is the amount of dilution in earnings per share? Question 12 options: A) $2.00 B) $1.38 C) $1.77 D) No dilution occurs since new money is received by Maxwell. Question 13 (1 point) Raybac is about to go public. Its present stockholders own 500 000 shares. The new public issue will represent 800 000 shares. The shares will be priced at $25 to the public with a 4% spread. The out-of-pocket costs will be $450 000. What are the net proceeds to the firm? Question 13 options: A) $18 750 000 B) $19 200 000 C) $18 250 000 D) $19 550 000 Question 14 (1 point) An increasing proportion of shares in the U.S. are owned by Question 14 options: A) individual investors. B) corporations (Treasury Stock). C) institutions. D) governments. Question 15 (1 point) Which of the following statements is true with respect to cumulative voting? Question 15 options: A) Cumulative voting permits multiple votes for a single director. B) Cumulative voting gives minority shareholders a better chance of being represented on the board of directors. C) If 6 directors are to be elected and you own 100 shares you may vote all 600 votes for one director and none for the others. D) All of these are true. Question 16 (1 point) A proxy is Question 16 options: A) a device for circumventing regular voting procedures. B) a coupon attached to each share of stock and used by the shareholders in casting his vote on current issues. C) an authorization of a registered stockholder to another person to act in his place at the meeting. D) a warrant allowing a stockholder to purchase a specified number of additional shares at a given price. Question 17 (1 point) If a preferred stock is of the cumulative type Question 17 options: A) dividends must be paid on an equal basis with common so long as earnings permit. B) dividends cannot be passed if they are earned. C) the cumulative voting rule applies in the exercise of the voting privilege. D) unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders. Question 18 (1 point) Which of the following is not a true statement? Question 18 options: 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 19 (1 point) Kuhns Corp. has 200 000 shares of preferred stock outstanding that is cumulative. The dividend is $6.50 per share and has not been paid for 3 years. If Kuhns earned $3 million this year what could be the maximum payment ot the preferred stockholders on a per share basis? Question 19 options: A) $19.50 per share B) $15.00 per share C) $13.00 per share D) $6.50 per share Question 20 (1 point) Given that there are 5 000 000 shares outstanding in Miller Corp. how many shares will be required for a minority group of stockholders to elect 2 of the 9 members on the board of directors? (Assume cumulative voting required) Question 20 options: A) 800 001 B) 1 000 001 C) 1 090 910 D) 1 000 000 Question 21 (1 point) An individualinvesting in preferred stock receiving a before-tax preferred yield of 8.5% and having a tax rate of 25% would receive an after-tax preferred yield of: Question 21 options: A) 8.5% B) 7.2% C) 8.2% D) 7.9% Question 22 (1 point) Sharpe Products has 1 million outstanding shares and 9 directors to be elected. Cumulonimbus Holdings owns 175 000 shares of Sharpe. How many directors can Cumulonimbus elect with cumulative voting? Question 22 options: A) 0 B) 1 C) 2 D) 3 Question 23 (1 point) A corporate investor of preferred stock receiving a before-tax preferred yield of 10.2% and having a corporate tax rate of 30% would receive an after-tax preferred yield of: Question 23 options: A) 10.2% B) 9.7% C) 7.1% D) 9.3% Question 24 (1 point) Nine 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 Question 24 options: A) $12.50 B) $86 C) $90 D) none of these Question 25 (1 point) Tricki Corp stock sells for $60 rights-on and the subscription price is $50. Ten rights are required to purchase one share. Tomorrow the stock of Tricki will go ex-rights. What is the price of Tricki expected to be when it beings trading ex-rights? Question 25 options: A) $57.23 B) $59.00 C) $59.09 D) $60 Question 26 (1 point) The Harsanyi Corp. is considering four investments. Which provides the highest after-tax return for Harsanyi Corp. if it is in the 34% tax bracket? Question 26 options: A) treasury bonds at 6.0% B) corporate bonds at 8.0% C) municipal bonds at 5.0% D) preferred stock at 7.0% Question 27 (1 point) A corporation may wish to repurchase some of its shares for all of the following reasons except Question 27 options: A) the stock may be needed for future mergers. B) the corporation’s executives will financially benefit if the stock is resold later at a substantial profit. C) it can stabilize or increase the market price of the stock. D) the stock may be needed for an employee compensation plan. Question 28 (1 point) A reverse stock split Question 28 options: A) occurs when a company wants to increase the price of its common stock because the market hasn’t recognized the improvements the company has made in achieving profitability. B) exchanges fewer new shares of common for old shares of common stock. C) will not change earnings per share. D) is more popular in bull markets than in bear markets. Question 29 (1 point) The marginal principle of retained earnings means that each potential project to be financed by retained earnings must Question 29 options: A) provide a higher rate of return than the stockholders can achieve after paying taxes on the distributed dividends. B) yield a return equal to or greater than the cost of capital. C) provide enough return to pay the corporation’s marginal tax rate. D) have an internal rate of return greater than the corporate growth rate of dividends. Question 30 (1 point) A major desire of stockholders regarding dividend policy is Question 30 options: A) frequent stock dividends. B) dividend stability. C) high payouts when earnings are up and lower payouts when earnings are down. D) payment of dividends at frequent intervals. Question 31 (1 point) Stockholders may prefer dividends to reinvestment by the firm Question 31 options: A) because dividends resolve some uncertainty. B) because dividend payments have an information content. C) because investors may prefer current cash to future cash. D) all of these. Question 32 (1 point) The primary purpose of a stock split is to Question 32 options: A) indicate the firm’s desire to retain funds. B) increase the investor’s overall wealth. C) reduce the threat of a takeover by creating more shares. D) bring the stock price to a lower trading range. Question 33 (1 point) A firm may repurchase stock in the market because Question 33 options: A) it will increase the stockholder’s wealth. B) the firm has inadequate capital budgeting alternatives. C) it provides positive informational content. D) all of these. Question 34 (1 point) Mirrlees Furniture earned $500 000 last year and had a 40 percent payout ratio. How much did the firm add to its retained earnings? Question 34 options: A) $200 000 B) $300 000 C) There is not enough information to tell. D) None of these. Information Dixon Corporation is considering a public offering of common stock. The firm will offer one million shares of common stock for sale. The estimated selling price is $30 per share with Dixon Corp. receiving $26.25 per share after the offering. Registration fees are estimated at $275 000. Use this information to answer the following questions. Question 35 (1 point) What is the spread in percent? Omit the percentage sign and round your answer to one decimal place. Question 35 options: Question 36 (1 point) What are the total expenses for the issue? Include the dollar sign and any necessary commas (ex: $5 000 000 would be entered as “$5 000 000” without the quotation marks). Question 36 options: Question 37 (1 point) If Dixon Corp. needs to generate $28 million how many shares will have to be sold? Omit any commas and round to the nearest whole number (ex: 7 950.43 would be entered as “7950” without the quotation marks). Your Answer: Information The Houston Corp. needs to raise money for an addition to its plant. It will issue 300 000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150 000. Presently Houston Corp has earnings of $3 million and 750 000 shares outstanding. Using this information answer the following questions. Question 38 (1 point) Compute the potential dilution from this new stock issue. Round your answer to the nearest penny and omit the dollar sign. Question 38 options: Question 39 (1 point) Compute the net proceeds to Houston Corp. Round the answer to the nearest whole dollar and omit the dollar sign and commas (ex: $12 500 000.23 would be entered as “12500000” without the quotation marks). Your Answer: Answer Question 40 (1 point) What rate of return must be earned on the net proceeds so that no dilution of earnings per share occurs? Omit the percent sign and take the answer to two decimal places (ex: 5.643% would be entered as “5.64” without the quotation marks). Your Answer:
