Financial management Quiz 4

1. The disadvantages of debt to the corporation include all but which of the following?

• A. Debt may have to be paid back with "cheaper" dollars.

• B. Interest and principal payments must be met.

• C. Indenture agreements may place burdensome restrictions on the firm.

• D. Too much debt may depress the firm's stock price.

2. Leasing is a popular form of financing because:

• A. Lease provisions are generally less restrictive than a bond indenture.

• B. The lessor likely has experience with the equipment being leased.

• C. The lessee may not be financially able to purchase.

• D. All of these.

3. A call feature allows:

• A. The bondholder to redeem the bond before the maturity date.

• B. The corporation to redeem the bond before the maturity date.

• C. The corporation to convert the bond to common stock.

• D. The bondholder demanded increased collateral.

4. The following are primary purchasers of preferred stock except:

• A. Corporate investors.

• B. Insurance companies.

• C. Pension funds.

• D. Individual investors.

5. Under normal operating conditions, the board of directors is elected by:

• A. The common stockholders.

• B. The preferred stockholders.

• C. The bondholders.

• D. Two of the above.

6. To the corporate investor, preferred stock offers which of the following

advantages?

• A. A slightly higher yield than debt.

• B. 30% of preferred dividends are tax-exempt.

• C. 70% of preferred dividends are tax-exempt.

• D. A and B are correct.

7. A stock dividend will:

• A. Increase the total value of stockholders' equity.

• B. Decrease the total value of stockholders' equity.

• C. Not affect the total value of stockholders' equity.

• D. Change the total value of stockholders' equity but the direction cannot be determined

  unless the market price and par value is known.

8. A 2-for-1 stock split is declared. In this case which of the following statements is

true?

• A. The cash account declines.

• B. The common stock account rises.

• C. The retained earnings fall.

• D. The par value of the common stock is reduced.

9. According to the law, dividends may be funded from:

• A. Past earnings.

• B. Current earnings.

• C. Future earnings.

• D. Only A and B.

10. 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 are tax deductible

  when dividends are paid.

• C. Is not as costly as common stock or bonds.

• D. Has no future negative ramifications when dividend payments are missed.