Chapter 20 - Financial Decisions and Management

One reason for using a sale and lease-back arrangement in lease financing is to: A. Create an infusion of cash into the company B. Benefit from tax advantages from depreciation C. For income or costs in one period D. Eliminate off-balance sheet debt

A. Create an infusion of cash into the company

"The right of stockholders to purchase, on a pro-rata basis, any new shares issued by the company is referred to as: " A. Preemptive right B. Right of first refusal C. Existing ownership right D. Prevention of dilution right

A. Preemptive right

"Kahuna Boards Co. has just experienced a very profitable year and wants to share the success with its shareholders. In order to pay dividends, a sequence of events must occur. Which of the following chronological sequence of events is correct? 1. Stock is sold without the upcoming dividend attached 2. Dividend is paid 3. Board of directors announces the dividend 4. Holders of record are specified " "A. 3, 4, 1, 2 " "B. 3, 4, 2, 1 " "C. 4, 3, 2, 1 " "D. 4, 3, 1, 2"

"A. 3, 4, 1, 2 "

"A large mature company with limited growth opportunities (positive NPV projects) achieved abnormally high profits this year. After paying mandatory principal, interest, and taxes, the company has $200 million in surplus cash on hand. Assuming its investor base is most concerned with capital appreciation, which of the following is the BEST option for the company? " A. Declare a special dividend B. Reinvest cash into the company C. Declare a cash dividend D. Repurchase shares of outstanding stock

D. Repurchase shares of outstanding stock

The goal of a successful investor relations program is to ensure: A. Achievement of the company's earnings-per-share objective B. Accurate preparation of financial statements C. On-time filing of reports "D. Effective two-way communication between a company, the financial community, and other constituencies"

"D. Effective two-way communication between a company, the financial community, and other constituencies"

Company A regularly modifies its capital structure by repurchasing stock. Which one of the following is a true statement? A. Investors may feel that management is manipulating the stock price B. Stock repurchases are not an attractive alternative to dividend payments C. Partial disclosure to the regulators is required for repurchases D. Stock repurchases do not offer tax deferral advantages over dividends

A. Investors may feel that management is manipulating the stock price

A U.S.-based electronics company that buys components from one of its foreign subsidiaries at a price above market is likely to: A. Be paid large dividends by the subsidiary B. Be sheltering profits in a low-tax country C. Need tax consultants to act as intermediaries D. Make payment with an intracompany loan

B. Be sheltering profits in a low-tax country