Quiz 4

Firms can pay out cash to their shareholders in the following way(s): I) dividends II) share repurchases III) interest payments

1 and 2 only

Generally, firms engage in stock repurchases during: I) boom times as firms accumulate excess cash II) recessions due to low stock prices III) times when competitors' stock prices are dropping

1 only

Dividend policy changes are decided and announced by: I) the competitors of a firm II) the government III) the board of directors

3 only

Which of the following dividends are never in the form of cash? I) regular dividend II) special dividend III) stock dividend IV) liquidating dividend

3 only

DEF corporation had two issues of ordinary preferred stock with a $100 par value traded on the NYSE. One issue paid $5.56 annually per share and sold for $95.55 per share. The other paid $5.88 per share annually and sold for $97.50 per share. What is DEF Corporation's cost of preferred stock?

= (5.56/95.55) + (5.88/97.50) ---> Answer / # of stocks

The market for venture capital refers to the: a) private financial marketplace for providing equity investment for small, start up firms b) bond market c) market for providing equity to well established firms

A - Private financial marketplace for providing equity investment for small, start up firms

A business plan generally contains a description of: a) the proposed products b) the potential market c) the underlying technology d) resources needed

ALL

A general cash offer involves the following processes: I) register the issue with the SEC II) sell the securities through an underwriter or a syndicate of underwriters III) have underwriter build up a book of likely demand for the securities IV) price of the issue is fixed V) sell the securities to the public

ALL

Firms can repurchase shares in the following ways: I) open market repurchase II) tender offer III) Dutch auction IV) direct negotiation with a major shareholder

ALL

Generally, underwriters provide the following services to the issuing firm: a) provide advice b) buy some or all of the new issue c) resell the issue to the public

ALL

The following are advantages of shelf registration: I) securities can be issued in dribs and drabs without incurring excessive transaction costs II) securities can be issued on short notice III) security issues can be timed to take advantage of market conditions

ALL

The following statements are true of dividend reinvestment plans (DRIPs): I) They are offered by the companies to their shareholders. II) Generally, new shares are issued at a discount. III) The dividends are taxable as ordinary income.

ALL

Wealthy individuals who provide equity investment for new firms are called:

Angel investors

Miller and Modigliani's indifference proposition regarding dividend policy:

Assumes that investors can sell their stock at a fair price

Which of the following lists events in chronological order from earliest to latest?

Declaration date, ex-dividend date, record date

The required return of preferred stock is equal to the ___ ___ on the preferred stock.

Dividend Yield

Which of these dates, when arranged in chronological order, occurs last?

Dividend payment date

Dividend payments are used to change the firm's capital structure by replacing equity with debt

FALSE

Firms can pay out cash to their shareholders in the following ways: I) cash dividends, II) stock dividends A. I only B. II only C. I and II only D. III only

FALSE

According to survey data, which is the least-often cited dividend policy consideration?

Firms would prefer to raise new funds rather than reduce dividends

Generally, investors interpret the announcement of an increase in dividends as:

Good news, and the stock price increases

The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy:

Investment policy is independent of dividend policy

The stock exchange that specializes in trading the share of younger and rapidly growing companies is the:

NASDAQ

When a company sells an entire issue of securities to a small group of institutional investors like life insurance companies, pension funds, and so forth, it is called a(n):

Private placement

An equity issue sold to the firm's existing stockholders is called:

Rights offer

Cost of Preferred Stock

Rp = D / P0

Firms looking to raise funds will file registration statements with the:

SEC

Which of the following statements best describes shelf registration:

The provision that allows large companies to file a single registration statement covering financing plans up to three years into the future

The winner's curse is reduced in an:

Uniform price auction

Which of the following statements is generally true of VC firms?

VCs generally provide management advice and contacts in addition to capital

Equity investment in start up private companies is called:

Venture Capital

Underwriters can handle an issue of new securities on an: a) best efforts basis b) firm commitment basis c) all or none basis

a OR b OR c

Arrange the following in chronological order for a typical start-up firm: a) Angel investor b) mezzanine financing c) VC financing d) IPO

a, c, b, d

Generally, investors interpret the announcement of a decrease in dividends as:

bad news, and the stock price drops slightly

Large firms like Intel that provide equity capital to new innovative companies are called:

corporate venturers

If dividends are taxed more heavily than capital gains, then investors should be willing to pay:

more for stocks with low dividend yields

A rights issues is also called an:

privileged subscription

An equity issue sold to the firm's existing stockholders is called a:

rights offer.

A new public equity issue from a company with public equity previously outstanding is called an:

seasoned equity offering (SEO)

Generally, IPOs are

underpriced

Which of the following suggests that the firm is "mature" and ready to start paying dividends

Company has positive free cash flow but no new positive NPV projects

Shelf registration is more often used for the issue of:

Corporate bonds

Managers try to avoid reducing their stock's dividend

TRUE

Many companies have automatic dividend reinvestment plans

TRUE

Most public issues must be registered with the SEC, and the company may not sell securities until the SEC has approved its registration statement.

TRUE

Since preferred stock has a fixed divident paid every period forever, it is essentially a perpetuity.

TRUE

The Miller and Modigliani dividend irrelevance argument assumes that the firm's reinvestment policy and debt policy are both settled (fixed).

TRUE

The underwriting spread for debt is generally less than that for equity.

TRUE

Underpricing is a technique used by underwriters to enhance the success of an issue:

TRUE