1. Long term lease obligations are treated as:
a) items in the footnotes of the financial statements
b) solely as an expense items on the income statement
c) in a manner similar to debt on the balance sheet
d) as an asset to the firm
2. All of the following are advantages of rights offerings except:
a) the position of current shareholders is protected
b) a rights offering provides the firm with a built-in securities market
c) more interest may be generated in the market
d) the dollar value of rights traded on exchanges is very high
3. In terms of increasing risk to the investor, the proper ranking would be:
a) common stock, preferred stock, secured debt
b) long-term government debt, subordinated debt, common stock
c) long-term government debt, secured debt, preferred stock
d) secured debt, common stock, preferred stock
4. The directors of a small, closely held corporation may be reluctant to pay dividends at all because:
a) the dividends will be taxed at a higher rate
b) they fear diluting the cash position of the firms
c) they haven't the means to do a complete funds flow analysis
d) they fear a shareholder proxy battle
5. A corporation will typically pay the highest dividends in:
a) Development-Stage I
b) Growth-Stage II
c) Expansion-Stage III
d) Maturity-Stage IV
6. Derivatives are contracts that:
a) allow the holder to buy/sell a given commodity
b) are sold only in established financial markets
c) usually expose the holder to increased risk
d) completely remove risk in financial and economic transactions
7. A convertible security has:
a) an upside limitation, but no floor value
b) no upside limitation, but a floor value
c) more sensitivity to interest rate movements than regular bonds of equal maturity
d) a single, fixed yield under all scenario
8. The minimum value of a warrant is equal to
a) warrant price-intrinsic value
b) intrinsic value-warrant price
c) (market value of common stock-warrant exercise price) X number of shares per warrant
d) the speculative premium
9. Perhaps the greatest management motive for a merger is:
a) the synergistic effect
b) new product acquisition
c) the portfolio effect
d) tax loss carry-forwards
10. The market for corporate control:
a) effectively forces managers to strive to maximize shareholder wealth
b) is best run through a holding company
c) is a separate market for arbitrageurs
d) emphasizes the portfolio effect