MCQ ch17 Common and preffered stock financing quiz

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NorQuest College *

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2230

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Finance

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Jan 9, 2024

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1. Kuhns Corp. has 200,000 shares of preferred stock outstanding that is cumulative. The dividend is $6.50 per share and has not been paid for 3 years. If Kuhns retained earnings and after-tax income this year total $3 million, what could be the maximum payment to the preferred shareholders on a per share basis? a.$6.50 per share b.$15.00 per share c.$19.50 per share d.$13.00 per share Total preferred share= 200,000 Income this year=3000,000 Total prefer dividend accumulate=200,000*6.50*3=3,900,000 Maximum dividend payment=3000,000/200,000=15 2. Which of the following is not a true statement? a.Common shareholders are legally entitled to some dividend. b.A minority interest can still elect members to the board of directors under cumulative voting even though someone else owns 51% of the stock. c.Common shareholders have a residual claim to income. d.Bondholders may force a corporation into bankruptcy for failure to make interest payments. SED Corporation's shares are currently trading at $52.50. Shareholders have the right to buy 1 share of SED for every 5 rights they own at a price of $48.00. SED's rights trade at $_________? a.$4.50 b.$3.75 c.$1.75 d.$0.75 3. Preferred shareholders have a contractual claim against a corporation for dividends not declared by the Board of Directors. Select one: True False 4. Pre-emptive rights do not protect shareholders from dilution of their ownership position. Select one: True False 5. A common shareholder cannot force a company into bankruptcy for eliminating the dividend. Select one: True

False 6. Advantages that the American Depositary Receipts (ADRs) have over investing in actual shares of a foreign stock include all but the following: a. Have annual reports and financial statements presented in French, Spanish and Mandarin. b.ADRs are more liquid and less expensive than buying foreign stock directly. c.Unlike direct foreign stock, ADRs have financial statements presented in a US GAAP or IFRS format. d.Dividends are paid in dollars and easier to collect than actual shares of foreign stock. 7. If a corporate charter includes a provision for pre-emptive rights, the shareholders: a. may purchase existing treasury shares. b. get first option to buy additional issues of common shares. c. must sell their shares to the company. d. cannot utilize cumulative voting procedures. 8. Share classes are like bond ratings in that they are used to rank the performance of different corporation's stock. Select one: True False 9. The period during a rights offering when the shares no longer include rights to purchase additional shares of common stock is called the ex-rights period. Select one: True False 10. American Depositary Receipts (ADRs) are: a. certificates in U.S. companies that allow foreign investors to buy shares of American companies. b. certificates that have a legal claim on an ownership interest in a foreign company's common stock. c. receipts sent to foreign shareholders who own American companies. d. proof of ownership for Eurodollar deposits held by Americans. The dividend rate changes quarterly relative to money market rates. 11. To the corporate investor, preferred stock offers which of the following advantages? a.25% of preferred dividends are tax-exempt. b. A slightly higher yield than debt. c. 100% of preferred dividends are tax-exempt. d. Less risk than bonds due to ownership. 12. The ___________ assumes returns are reinvested at the cost of capital.

NPV 12. Which of the following statements about floating rate preferred stock is true? a. The dividend rate changes quarterly relative to money market rates. b. The dividend rate is tied to the inflation rate. c. The price of the stock will fluctuate with the market. d. The conversion rate changes annually relative to bankers' acceptance rates. 13. All the following statements are true except: a. poison pills discourage potential high takeover bids. b. poison pills discourage hostile takeovers. c. shareholders must approve the acceptance of poison pill strategies before a corporation can use them. d. many institutional investors are opposed to the poison pill. Preferred stock dividends are a deductible expense for a corporation. Select one: True False Generally, the receipt of corporate bond interest is more valuable than preferred dividends to corporate investors. Select one: True False The difference between the rights-on and ex-rights price is equal to the subscription price divided by N. Select one: True False A firm has 200,000 outstanding shares and 11 directors. Doug owns 15,500 shares of this firm. How many directors can Doug elect with cumulative voting? a. 0 b.1 c.2 d.3 Participating preferred stock is advantageous to common shareholders. Select one: True False The floating rate feature on preferred stock causes more volatility in its price. Select one: True False

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All of these dates are declared by the board of directors of a corporation except the A) payable date. B) ex-dividend date. C) record date. D) declaration date. B) ex-dividend date. An american depository receipt is a A) domestic security representing a foreign security in U.S. markets. B) foreign security trading in U.S. markets. C) domestic security trading in foreign markets. D) foreign security representing a domestic security in foreign markets. Which of the following are benefits of a rights offering? A. Rights offerings increase return on equity. B. Rights offerings substantiate higher debt to equity ratios. C. Rights offerings have lower margin requirements. D. None of the above The possible advantage(s) to a rights offering is/are: A. current shareholders are protected against dilution. B. the firm has a built-in market of knowledgeable investors. C. distribution costs are lower than a public offering. D. All of the above A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm acquire the company is called: A. a preemptive right. B. a poison pill. C. ex-rights. D. rights-on. Preferred stock may be good for a company because it: A. expands the capital base of the firm without diluting the common stock ownership. B. does not require interest payment in times of financial trouble, but is tax-deductible when dividends are paid. C. is not as costly as common stock or bonds. D. gives up no control even when dividend payments are missed. The cost of preferred stock is ________. A) lower than the cost of long-term debt. B) higher than the cost of common stock. C) higher than the cost of long-term debt and lower than the cost of common stock. D) lower than the cost of convertible long-term debt and higher than the cost of common stock. If a firm has class A and class B common stock outstanding, it means that ________. A) each class receives a different dividend

B) the par value of each class is different C) the dividend paid to one of the classes is tax deductible by the corporation D) one of the classes is probably nonvoting stock Preferred stock is often sold by companies: A. wanting to balance their capital structures. B. that have a large amount of debt relative to equity. C. looking for the taxable advantages of preferred dividends over common stock dividends. D. Both A and B Stockholders may prefer dividends to reinvestment by the firm: A. because dividends resolve some uncertainty. B. because dividend payments have an information content. C. because investors may prefer current cash to future cash. D. All of the above A major desire of stockholders regarding dividend policy is: A. frequent stock dividends. B. dividend stability. C. high payouts when earnings are up and lower payouts when earnings are down. D. payment of dividends at frequent intervals.