Chapter 6 - TM

A company plans to issue additional equity within the next 12 months but needs to issue debt at a low interest rate now. Which of the following instruments would BEST meet this objective? A. Convertible bonds B. Private placement issue C. Preferred stock D. Subordinated debentures

A. Convertible bonds

Securities sold by companies in an initial public offering (IPO) are: A. A specific type of security sold by a public company for the first time B. Debt securities sold on the open market C. Public securities sold by a private company for the first time D. Securities sold by a private company to a limited number of investors

C. Public securities sold by a private company for the first time

When a short-term loan is paid with a lump sum payment and the payment includes both interest and principal, the loan is often referred to as a: A. Single payment note B. Material payment note C. Balloon payment note D. Commercial note

A. Single payment note

Which is characteristic of a sinking fund debt repayment plan? A. Always requires calling a portion of bond each month B. Can make payments into a trust each year to retire the issue at maturity C. Increases the risk of the bonds D. Increases the required interest rate

B. Can make payments into a trust each year to retire the issue at maturity

Which describes a bond issue, lists collateral, makes representations and warranties, specifies covenants and redemption terms, and sets interest payments or call provisions? A. Guarantees B. Indentures C. Put provisions D. Covenants

B. Indentures

Which of the following is an example of a Eurobond? A. A bond that is denominated in euros, issued in France by a French company B. A bond that is denominated in pounds, issued in the U.K. by a U.S. company C. A bond that is denominated in Japanese Yen, issued in the U.K. by a U.S. company D. A bond that is denominated in euros, issued in a European market by a U.S. company

C. A bond that is denominated in Japanese Yen, issued in the U.K. by a U.S. company

Which of the following BEST describes an advantage of a company going public? A. Increased management control B. Increased public disclosure C. Increased managerial flexibility D. Increased liquidity

D. Increased liquidity

Company ABC needs external capital to finance a new product line. Its operating leverage is high, and its revolving credit agreement contains a ratings trigger. What will Company ABC MOST LIKELY do to finance its new product line? A. Issue convertible debentures B. Issue long-term notes C. Issue common stock D. Use retained earnings

C. Issue common stock

Which of the following contributes MOST to the marketability of a security? A. An investment-grade rating B. An irrevocable letter of credit guarantee C. A return at or above the yield curve D. A large, active secondary market

D. A large, active secondary market

The items listed below are typically included in covenants. Which is another of these items? A. Affirmation of valid, legal existence B. Right to issue additional debt C. Convertibility D. Board resolution

B. Right to issue additional debt

XYZ Holdco has multiple credit facilities with a bank under a borrowing agreement that includes certain covenants. A fire has destroyed the manufacturing plant owned by ABC, one of the XYZ subsidiaries that is part of the credit facilities. All loans, including the ABC loan, are up to date and being repaid as required. However, after the fire, the bank notified XYZ that it was in default. Which one of the following covenants is MOST LIKELY a term of the borrowing agreement? A. Technical default B. Cross-default provisions C. Material adverse change D. Total liabilities to assets ratio default

C. Material adverse change

An arrangement in which a borrower makes periodic payments to a separate custodial account that is used to repay debt is known as a: A. Sinking fund B. Balloon payment C. Mortgage D. Zero-coupon bond

A. Sinking fund