Multiple Choice questions on stocks and bonds.
1. All of the following are advantages of going public except
a. more funds are available to publicly traded firms
b. the fact a company is public helps in bank negotiations and marketing.
c. publicly-traded stocks afford the stockholders more liquidity.
d. the firm disseminates more information to the public on corporate affairs.
2. A corporation's board of directors:
a. is selected by and can be removed by management.
b. can be voted out of power by the shareholders.
c. has a lifetime appointment to the board.
d. is selected by a vote of all corporate stakeholders.
3. Which of the following is considered an advantage (for the corporation) of going public?
a. The president becomes a public relations man
b. Extensive and time-consuming reporting requirements
c. Increased liquidity for the corporation's shareholders
d. The cost of flotation
4. Security markets provide liquidity
a. by allowing corporations to raise funds by selling new issues.
b. by creating a market in which owners may easily turn an investment into cash through its sale.
c. a and b are both correct.
d. neither a nor b are correct.
5. Depreciation tends to
a. increase cash flow and decrease income
b. decrease cash flow and increase income
c. affect only cash flow
d. affect only income
6. If you only had an extra $225 per month, what is the largest car payment you could pay if "i" = 8% per year and you had 5 years to pay?
a. $13,495.00
b. $13,500.00
c. $1 0,780.00
d. $11,090.00
7. Maxwell Corp. is coming to the market with a new offering of 300,000 shares of stock at $25 to the public. Maxwell will receive $22 per share. The firm has 1 million shares outstanding and earnings of $6 million. What is the amount of dilution in earnings per share?
a. $2.00
b. $1.38
c. $1.77
d. No dilution occurs since new money is received by Maxwell.
8. Corporations prefer bonds to preferred stock for financing their operations because
a. preferred stocks require a dividend.
b. bond interest rates change with the economy while stock dividends remain constant.
c. the after-tax cost of debt is less than the cost of preferred stock.
d. none of the above
9. In issuing stock, the term "spread" refers to
a. the profit the managing investment banker gets for an issue of stock.
b. the disparity between the initial asking price and the average price for the stock issued some months later.
c. the difference between what the corporation gets for new issues of stock and what the public pays for the stock.
d. the total cost to the corporation for issuing new stock.
10. Which of the following is an internal source of funds?
a. Cash flow from depreciation (tax shield)
b. Net loss
c. Repurchase of debt securities
d. Bank loan