Chapter 15 (Ross12e) - Raising Capital

Which group has the ultimate control over a corporation?

• Bondholders

• Classified board

• Shareholders

• Directors

• Chief executive officer

A classified board is one which has:

• representation from various classes of stock.

• terms that expire at different times.

• both employee and non-employee directors.

• directors elected solely by one class of shareholders.

• directors that have been assigned differing numbers of votes per seat.

Preferred stock dividends:

• become a debt of the firm if unpaid.

• can be deferred indefinitely.

• are only paid if common stock dividends are also paid.

• have priority over debt interest payments but not common stock dividends.

• are a tax-deductible business expense.

Firms may prefer to issue cumulative preferred stock rather than debt for which reason?

• If there is no current taxable income, preferred stock dividends are automatically voided.

• Preferred stock has no voting rights but debt does.

• Preferred dividends provide a tax shield but debt does not.

• Corporate investors can receive a tax break on dividends.

• Dividend payments are tax deductible, interest on debt is not.

Which one of the following statements about preferred stock is true?

• Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.

• Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.

• If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year.

• There is no significant difference in the voting rights granted to preferred and common shareholders.

• Preferred stock usually has a stated liquidating value of $100 per share.

A grant of authority allowing someone else to vote shares of stock that you own is called a:

• power-of-share authorization.

• proxy.

• share authority grant (SAG).

• restricted conveyance.

• general right of execution.

Not paying dividends on a cumulative preferred issue may result in:

• preferred dividend arrearages that can be eliminated only after all common dividends are paid.

• increased taxes based on the amount of the dividend arrearage.

• the permanent forfeiture of all unpaid past dividends but the resumption of future dividends.

• the issuer being forced into repaying all preferred shareholders the stated value of their shares.

• voting rights being granted to preferred shareholders.

ABC owns 15 percent of XYZ Corporation. What tax benefit does ABC derive from this situation?

• ABC receives no tax benefit but XYZ is only taxed on 30 percent of its net income.

• ABC benefits because it is able to treat any XYZ dividends it receives as interest income.

• Fifty percent of the dividends paid by XYZ to ABC is exempt from income taxes.

• ABC can exclude 30 percent of any XYZ dividends received from its taxable income.

• All dividend income ABC receives from XYZ is tax-exempt.

There are three directors' seats up for election. If you own 1,000 shares of stock and have been granted a total of 3,000 votes to cast in a single election, then the firm uses the voting procedure referred to as:

• cumulative voting.

• absolute priority voting.

• sequential voting.

• straight voting.

• market share voting.

There are three directors' seats up for election. If you own 1,000 shares of stock and you can cast 1,000 votes in each of the three elections, then the firm uses the voting procedure referred to as:

• cumulative voting.

• absolute priority voting.

• sequential voting.

• straight voting.

• market share voting.