Chapter 17 Smartbook -- Finance

Only Blank______% of the dividends received by a corporation for their ownership in the preferred or common stock of another corporation is subject to corporate taxes. Multiple choice question. 10 50 20 25

50

Many foreign corporations accommodate American investors by issuing Multiple choice question. preferred stock statements to the SEC American depository receipts common stock listed on the NYSE

American depository receipts

True or false: The preemptive right provision provides present shareholders with the ability to protect their voting rights, but not their proportionate claim to earnings per share.

False

How are preferred stock dividends and interest treated for taxation purposes? Multiple choice question. Neither interest or preferred dividends are tax deductible. Interest is tax deductible and preferred dividends do not reduce taxable income. Interest is not tax deductible and preferred dividends reduce taxable income. Interest and preferred dividends are both tax deductible.

Interest is tax deductible and preferred dividends do not reduce taxable income.

True or False: The two steps to value a right are to first determine the average value of one share post rights offering and secondly to determine the difference between this new diluted value and the subscription price divided by the rights required to buy one share.

True

True or false: Companies use preemptive rights as a way to raise equity capital from their current shareholders.

True

Select all that apply In a rights offering, when an existing shareholder is notified that they have been given one right for each share owned, they can do which of the following? Multiple select question. do nothing and let the rights expire order all the rights to be sold keep the rights indefinitely subscribe to the full number of entitled shares

do nothing and let the rights expire order all the rights to be sold subscribe to the full number of entitled shares

How is preferred stock classified for tax purposes? Multiple choice question. debt or equity, depending on the discretion of the board of directors debt equity asset

equity

Select all that apply Poison pill Blank______. Multiple select question. is also knowns as shareholders' right plan makes a takeover very cheap makes a takeover very expensive

is also knowns as shareholders' right plan makes a takeover very expensive

Select all that apply A poison pill defense: (Check all that apply>) Multiple select question. is triggered when a hostile bidder manages to acquire a specified percentage. has the price for all other shareholders drop dramatically (hostile bidder is blocked from purchasing these shares). creates an environment of healthy competition between bidders for a corporation. has the goal of watering down the shares and scaring off the potential buyer.

is triggered when a hostile bidder manages to acquire a specified percentage. has the price for all other shareholders drop dramatically (hostile bidder is blocked from purchasing these shares). has the goal of watering down the shares and scaring off the potential buyer.

Preemptive rights protect the shareholder by Blank______. Multiple choice question. providing the opportunity for only management to participate in new equity issues. ensuring the dilution of shareholder wealth. allowing companies to raise equity capital without the participation of current shareholders. providing the opportunity for current shareholders to participate in new equity issues.

providing the opportunity for current shareholders to participate in new equity issues.

True or False: There have been short or intermediate periods of time in which investments with lower risk have outperformed investments with higher risk

True

In terms of legal distinctions, a corporation is directly controlled by its Multiple choice question. creditors common stockholders employees management

common stockholders

In terms of legal distinctions, a corporation is directly controlled by its Multiple choice question. employees common stockholders creditors management

common stockholders

Select all that apply Members of the board may serve on a number of the corporation's committees, including Multiple select question. compensation committee audit committee divisional committee financial planning committee

compensation committee audit committee financial planning committee

Stockholder's who purchase ADRs will receive Multiple choice question. preferred stock certificates depository receipts nothing common stock certificates

depository receipts

A participation provision allows preferred stock holders to Blank______. Multiple choice question. receive additional dividends after the common dividends exceed the preferred dividends participate fully in the net income distribution to all shareholders receive additional dividends after the common dividends equal preferred dividends receive additional dividends before any common dividends are paid

receive additional dividends after the common dividends equal preferred dividends

Which asset class has the greatest risk and the greatest expected return? Multiple choice question. Equity Preferred Stock Long Term Bonds Short-Term Debt

Equity

True or False: A preferred issue with a call provision has a slightly lower yield than a similar issue without a call provision.

False

A company initiates a rights offering to all common shareholders to purchase shares at a 40% discount. All current shareholders take part and purchase the shares at the discounted price. What effect does this transaction have on the value of a shareholder's total portfolio? Multiple choice question. The transaction has no effect on total portfolio value. The transaction increases total portfolio value because the shares were purchased below the market price. The transaction decreases total portfolio value because of dilution to the value of the shares.

The transaction has no effect on total portfolio value.

True or False: An ADR allows U.S. shareholders to purchase shares in foreign companies.

True

True or False: Preferred stockholders may be offered common stock or bonds in lieu of missed dividends.

True

Compared to a traditional equity sale, rights offerings tend to have investment banking fees that are Blank______. Multiple choice question. higher the same lower

lower

Select all that apply The common stockholders' residual claim to the income can take the form of Multiple select question. plant and equipment retained earnings dividends debt financing

retained earnings dividends

A company is able to raise more capital through a rights offering because Blank______ Multiple choice question. there is a perception by investors that they are overpaying for the stock by purchasing through the right. the margin requirement to purchase rights is lower than the same requirement for stocks. a rights offering is lower risk to the investment banker and so the fees and distribution costs are higher.

the margin requirement to purchase rights is lower than the same requirement for stocks.

True or False: Most preferred stock issues have a participation provision.

False

True or False: The dividend on floating rate preferred stock varies based on the risk of the issuing company.

False

True or false: In a rights offering, existing shareholders must purchase more shares.

False

Cumulative voting is beneficial to Blank______ Multiple choice question. a family that holds 80% of the common stock in a company. the founder that is holding 60% of the common stock in a company. the CEO of the company. an individual investor holding 10% of the common stock in a company.

an individual investor holding 10% of the common stock in a company.

Select all that apply Members of the board may serve on a number of the corporation's committees, including Multiple select question. audit committee compensation committee divisional committee financial planning committee

audit committee compensation committee financial planning committee

The number of shares that can be purchased in the rights offering is Blank______ Multiple choice question. a standardized metric across all companies. based on a ratio of current shares held to total issued shares. based on the market price of the shares. based on the number of shares the investor currently owns.

based on the number of shares the investor currently owns.

A rational shareholder will subscribe to a rights offering only if the subscription price is Blank______. Multiple choice question. above the market price of the stock prior to the offer's expiration date. above the market price of the stock on the offer's expiration date. below the market price of the stock on the offer's expiration date.

below the market price of the stock on the offer's expiration date.

A proxy provides management or some outside contesting group with the power to Multiple choice question. cast the bondholder's ballot cast both common and preferred stockholder's ballots cast the preferred stockholder's ballot cast the common stockholder's ballot

cast the common stockholder's ballot

Ownership of the firm resides in Multiple choice question. common stock management creditors claims employees

common stock

A company that issues preferred stock is attempting to Blank______. Multiple choice question. raise capital by taking on more debt and not diluting current stockholders raise capital without diluting current stockholders or taking on more debt dilute current stockholders by issuing more shares and paying down debt raise capital by issuing more common shares thus diluting current stockholders

raise capital without diluting current stockholders or taking on more debt

All income remaining after paying the creditors and preferred stockholders is referred to as the common stockholders' Multiple choice question. interest payments shares of stock residual claim to income long-term debt

residual claim to income

When a bank issues an ADR what is occurring? Multiple choice question. The bank has purchased receipts issued against a trust and is selling the receipts to a foreign company. A foreign company is purchasing receipts from a trust that has been structured by a domestic bank. The bank has purchased shares in a foreign company, placed the shares in a trust, and issued depository receipts against the trust. The bank has purchased shares in a domestic company, placed the shares in a trust, and issued depository receipts against the trust.

The bank has purchased shares in a foreign company, placed the shares in a trust, and issued depository receipts against the trust.

True or false: Preferred stock can have conversion features that allow either the investor or the issuer to convert preferred shares to common stock or debt.

True

The number of shares that can be purchased in the rights offering is Blank______ Multiple choice question. based on the market price of the shares. a standardized metric across all companies. based on the number of shares the investor currently owns. based on a ratio of current shares held to total issued shares.

based on the number of shares the investor currently owns.

Ownership of the firm resides in Multiple choice question. employees common stock management creditors claims

common stock

If a company has cumulative preferred stock in its capital structure and it has not paid preferred and common dividends in 3 years, it must Blank______. Multiple choice question. pay three years of common and preferred dividends ignore the dividend history and pay dividends that are due to preferred share holders in the current period pay three years of preferred dividends before it can pay a common dividend pay three years of common dividends before it can pay a preferred dividend

dividends