Question 1

If a preferred stock is of the cumulative type,

Accepted Answer

A)  dividends must be paid on an equal basis with common stock, 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.E) A) and B)
F) B) and C)

Question 2

An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

Accepted Answer

A)  6.75%
B)  5.1%
C)  5.7%
D)  6.1%E) C) and D)
F) None of the above

Question 3

"Preemptive rights" means that

Accepted Answer

A)  existing shareholders can prevent management from issuing additional common stock.
B)  common shareholders can "preempt" preferred shareholders for dividends.
C)  existing shareholders are guaranteed an opportunity to retain their proportional share of ownership of the firm.
D)  management can preempt the right of shareholders to receive dividends if earnings are down.E) A) and C)
F) C) and D)

Question 4

American Depository Receipts (ADRs)  are

Accepted Answer

A)  receipts sent to foreign stockholders who own American companies.
B)  proof of ownership for Eurodollar deposits held by Americans.
C)  certificates that have a legal claim on an ownership interest in a foreign company's common stock.
D)  certificates in U.S.companies that allow foreign investors to buy shares of American companies.E) A) and B)
F) A) and C)

Question 5

Which of the following statements about floating rate preferred stock is true?

Accepted Answer

A)  The dividend rate changes quarterly.
B)  The price of the stock fluctuates with the market.
C)  The dividend rate is tied to the inflation rate.
D)  More than one of the options.E) A) and D)
F) B) and C)

Question 6

Buggy Whip Manufacturing Company is issuing preferred stock yielding 8%. Selten Corporation is considering buying the stock. Assume that Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 34%. What is the after-tax preferred yield for Selten? Assume the tax rate on dividends is 15%.

Accepted Answer

A)  7.22%
B)  5.33%
C)  7.64%
D)  8.04%E) All of the above
F) A) and C)

Question 7

Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

Accepted Answer

A)  800,001
B)  1,000,001
C)  1,090,910
D)  1,000,000E) A) and D)
F) B) and C)

Question 8

Which of the following is NOT a primary investor in preferred stock?

Accepted Answer

A)  Commercial banks
B)  Corporations
C)  Insurance companies
D)  Pension fundsE) C) and D)
F) B) and C)

Question 9

Preferred stock generally carries a higher interest rate than debt.

Accepted Answer

A) True 
 B)False

Question 10

The difference between the rights-on and ex-rights price is equal to the subscription price divided by N, where N is the number of rights needed to purchase a new share of stock.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is true with respect to cumulative voting?

Accepted Answer

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 six 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 options are true.E) A) and D)
F) A) and B)

Question 12

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

Accepted Answer

A) True 
 B)False  False

Question 13

The subscription rate of a new offering is generally _______ than the rights-on price and _______ than the ex-rights price.

Accepted Answer

A)  higher; higher
B)  higher; lower
C)  lower; higher
D)  lower; lowerE) All of the above
F) A) and D)

Question 14

Sharpe Products has one million outstanding shares and seven directors to be elected. Cumulonimbus Holdings owns 200,000 shares of Sharpe. How many directors can Cumulonimbus elect with cumulative voting?

Accepted Answer

A)  0
B)  1
C)  2
D)  3E) A) and B)
F) A) and C) B

Question 15

The most important feature of the preemptive right is that the rights

Accepted Answer

A)  may be sold for profit.
B)  afford stockholders possible protection against dilution.
C)  may be cumulatively voted.
D)  are nontransferable.E) A) and D)
F) B) and C)

Question 16

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Accepted Answer

A) True 
 B)False

Question 17

Common stockholders' rights include all of the following except for which one?

Accepted Answer

A)  Fixed dividend yield
B)  Voting rights
C)  First option to purchase new shares
D)  Residual claim to incomeE) B) and C)
F) A) and B)

Question 18

Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

Accepted Answer

A) True 
 B)False

Question 19

A common stockholder cannot force a company into bankruptcy for eliminating the dividend.

Accepted Answer

A) True 
 B)False  True

Question 20

"Dutch auction" preferred stock

Accepted Answer

A)  is issued first to the bidder willing to accept the lowest yield.
B)  matures periodically, and is then re-auctioned at a subsequent bidding.
C)  allows corporate investors to take advantage of preferred stock tax benefits.
D)  All of these optionsE) A) and C)
F) A) and B)

Exam 17: Common and Preferred Stock Financing

If a preferred stock is of the cumulative type,

Correct Answer
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An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

Correct Answer
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"Preemptive rights" means that

Correct Answer
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American Depository Receipts (ADRs) are

Correct Answer
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Which of the following statements about floating rate preferred stock is true?

Correct Answer
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Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

Correct Answer
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Which of the following is NOT a primary investor in preferred stock?

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Preferred stock generally carries a higher interest rate than debt.

Correct Answer
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The difference between the rights-on and ex-rights price is equal to the subscription price divided by N, where N is the number of rights needed to purchase a new share of stock.

Correct Answer
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Which of the following statements is true with respect to cumulative voting?

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A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

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False

The subscription rate of a new offering is generally _ than the rights-on price and _ than the ex-rights price.

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Sharpe Products has one million outstanding shares and seven directors to be elected. Cumulonimbus Holdings owns 200,000 shares of Sharpe. How many directors can Cumulonimbus elect with cumulative voting?

Correct Answer
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B

The most important feature of the preemptive right is that the rights

Correct Answer
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Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Correct Answer
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Common stockholders' rights include all of the following except for which one?

Correct Answer
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Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

Correct Answer
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A common stockholder cannot force a company into bankruptcy for eliminating the dividend.

Correct Answer
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True

"Dutch auction" preferred stock

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Exam 17: Common and Preferred Stock Financing

If a preferred stock is of the cumulative type,

Correct AnswerverifiedShow Answer

An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

Correct AnswerverifiedShow Answer

"Preemptive rights" means that

Correct AnswerverifiedShow Answer

American Depository Receipts (ADRs) are

Correct AnswerverifiedShow Answer

Which of the following statements about floating rate preferred stock is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Given that there are 4,000,000 shares outstanding in Miller Corp., how many shares will be required for a minority group of stockholders to elect two of the nine members on the board of directors? (Assume cumulative voting is required.)

Correct AnswerverifiedShow Answer

Which of the following is NOT a primary investor in preferred stock?

Correct AnswerverifiedShow Answer

Preferred stock generally carries a higher interest rate than debt.

Correct AnswerverifiedShow Answer

The difference between the rights-on and ex-rights price is equal to the subscription price divided by N, where N is the number of rights needed to purchase a new share of stock.

Correct AnswerverifiedShow Answer

Which of the following statements is true with respect to cumulative voting?

Correct AnswerverifiedShow Answer

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

Correct AnswerverifiedFalse

The subscription rate of a new offering is generally _______ than the rights-on price and _______ than the ex-rights price.

Correct AnswerverifiedShow Answer

Sharpe Products has one million outstanding shares and seven directors to be elected. Cumulonimbus Holdings owns 200,000 shares of Sharpe. How many directors can Cumulonimbus elect with cumulative voting?

Correct AnswerverifiedB

The most important feature of the preemptive right is that the rights

Correct AnswerverifiedShow Answer

Preferred stock would generally provide a lower before-tax yield to investors than secured debt due to its lower risk.

Correct AnswerverifiedShow Answer

Common stockholders' rights include all of the following except for which one?

Correct AnswerverifiedShow Answer

Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

Correct AnswerverifiedShow Answer

A common stockholder cannot force a company into bankruptcy for eliminating the dividend.

Correct AnswerverifiedTrue

"Dutch auction" preferred stock

Correct AnswerverifiedShow Answer

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False

The subscription rate of a new offering is generally _ than the rights-on price and _ than the ex-rights price.

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B

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True

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