1.)In a period of rising sales utilizing past cost and expense ratios (percent-of-sales method), when preparing pro forma financial statements and planning financing, will tend to
A) understate retained earnings and understate the additional financing needed.
B) overstate retained earnings and overstate the additional financing needed.
C) understate retained earnings and overstate the financing needed.
D) overstate retained earnings and understate the financing needed.
2) The ________ rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.
A) nominal
B) real
C) risk-free
D) premium
3.) The cost of long-term debt generally ________ that of short-term debt.
A) is less than
B) is equal to
C) is greater than
D) has no relation to
4.) If a bond pays $1,000 plus interest at maturity, $1,000 is called the
A) stated value.
B) market value.
C) par value.
D) long-term value.
5.) ________ became popular vehicle used to finance mergers and takeovers during the 1980s.
A) Income bonds
B) Junk bonds
C) Floating rate bonds
D) Convertible debentures
6.) An instrument that give their holders the right to purchase a certain number of shares of the firm's common stock at a specified price over a certain period of time is called
A) stock purchase warrants.
B) call feature.
C) conversion feature.
D) none of the above.
7.) A ________ bond generally has an interest rate that is higher than a similar risk ________ bonds, and a ________ bond generally has an interest rate that is lower than a similar risk ________ bond.
A) callable; non-callable; convertible; non-convertible
B) convertible; non-convertible; callable; non-callable
C) convertible; callable; non-convertible; non-callable
D) callable; non-callable; non-convertible; convertible
8.) Bonds are
A) a series of short-term debt instruments.
B) a form of equity financing that pays interest.
C) long-term debt instruments.
D) a hybrid form of financing used to raise large sums of money from a diverse group of lenders.
9.) Another term sometimes applied to a common shareholder is a
A) fundamental or basic owner of the firm.
B) residual owner of the firm.
C) net owner of the firm.
D) reciprocal owner of the firm.
10.) ________ is hired by a firm to find prospective buyers for its new stock or bond issue.
A) A securities analyst
B) A trust officer
C) A commercial loan officer
11.) Identify whether the key characteristic describes common stock (CS) or preferred stock (PS).
1. Source of financing which places minimum constraints on the firm.
2. Used often in mergers.
3. Potential dilution of earnings and voting power.
4. Fixed financial obligation.
5. Increases the firm's borrowing power.
6. May have cumulative and participating features.
7. May be convertible into another type of security.
8. Last to receive earnings or distribution of assets in the event of bankruptcy.
9. Frequently includes a call feature.