Chapter 14 Introduction to Corporate Financing

When new shares of stock are sold at a price greater than par value, the excess over par is recorded as:

Capital Surplus

Preferred stock dividends:

Have priority over common stock dividends

A corporation with funded fixed-rate debt might prefer floating-rate debt if it thought that:

Interest rates would be declining

Which one of the following statements about floating-rate preferred stock is correct? A. Its dividends increase as interest rates increase B. Its market price increases at a set rate annually C. It is the only stock issued without a par value D. Its dividends are deductible for tax purposes by the paying corporation

Its dividends increase at interest rates increase

A stock's ar value is represented by the:

Price at which each share is recorded

Bonds that have been sold to only a limited number of institutional investors are considered:

Private placements

If a corporation issues 1,000 shares of $1 par value stock for $10 per share, then retained earnings will:

Remain unchanged

A capital surplus is obtained when the selling price of new shares is greater than the par value.

True

If shareholders do not like the policies that management pursues, their easiest solution is to vote in a different board of directors.

True

Shares of stock that have been issued and subsequently repurchased by the issuer are known as treasury stock.

True

Suppose a firm needs fresh capital, but its management does not want to give up its controlling interest. The existing shares could be labeled Class A, and then Class B shares with limited voting rights could be issued to outside investors.

True

The gap between internally generated cash and the cash that the company needs is called the financial deficit.

True

The price at which new shares are sold to investors almost always exceeds par value. The difference is entered into the company's accounts as additional paid-in capital or capital surplus.

True

Is it true that common stock dividends cannot be paid if preferred stock dividends are in arrears:

Yes