Chapter 14 Quiz, An Overview of Corporate Financing




1. Retained earnings are:
A.The amount of cash that the firm has saved up
B.The difference between the net income earned and the dividends paid during a year
C.The difference between the market price of the stock and the book value
D.The amount of directly contributed equity capital in excess of par value


2. Internally generated cash is calculated as:
A.Retained earnings plus interest payments
B.Retained earnings plus depreciation
C.Retained earnings minus depreciation
D.Dividends paid plus interest payments


3. Generally, managers of corporations prefer internally generated cash to finance their capital expenditures because:
A.They can avoid the discipline of the security markets
B.The costs of issuing new securities are high
C.The announcement of new equity issue is usually bad news for investors
D.All of the above


4. A firm has $100 million in current liabilities, $200 million in total long-term liabilities and $300 million in stockholders' equity, total assets of $600 million. Calculate the debt ratio for the firm.
A.40%
B.20%
C.50%
D.None of the above


5. Total capitalization is defined as:
A.Total long-term liabilities plus stockholders' equity
B.Total debt plus stockholders' equity
C.Total debt minus stockholders' equity
D.Current liabilities and stockholders' equity


6. A stock certificate has a stated value on it. This amount is called the:
A.Book value
B.Par value
C.Liquidation value
D.None of the above


7. Capital surplus usually refers to:
A.The stock's par value
B.The accumulated retained earnings during the life of the corporation
C.The amount of directly contributed equity capital in excess of par value
D.The amount of stock repurchased


8. Shares of stock that have been repurchased by the corporation are called
A.Treasury stock
B.Repurchase agreements
C.Authorized shares
D.Retained equity


9. The market value of equity is calculated as:
A.(Market price) x (# of shares outstanding)
B.(Market price) x (# of treasury shares)
C.(Market price) x (# of authorized shares)
D.(Par value) x (# of shares outstanding)


10. The equity accounts of ABX Company is as follows:


Suppose that the company sells 1,000,000 additional shares at a price of $5.00 per share, what is the new value of Common Shares account?
A.4,000,000
B.3,000,000
C.2,000,000
D.None of the above


11. If you own 1,000 shares of stock and you can cast 5,000 votes for a particular director, then the stock features:
A.Cumulative voting
B.Straight voting
C.Majority voting
D.None of the above


12. Suppose you own 500 shares of common stock of a firm and there are five directors being elected, what is the maximum number of shares you can cast for a particular director under majority voting?
A.500
B.2,500
C.100
D.None of the above


13. A grant of authority allowing someone else to vote shares of stock that you own is called a:
A.Power of share authorization
B.Proxy voting
C.Restricted conveyance
D.None of the above


14. A modification to the company charter that requires 75% shareholder approval for a merger is called a(n):
A.Majority voting amendment
B.Cumulative voting amendment
C.Proxy voting amendment
D.Supermajority amendment


15. Long-term debt is often called:
A.Secured debt
B.Subordinated debt
C.Funded debt
D.Unfunded debt



This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.