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Which of the following statement is incorrect?
| a |
Cumulative voting is said to be of benefit to minority shareholders because they have the option of placing all of their votes toward one seat during elections. |
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| b |
Callable bond issuers exercise their option to repurchase the bond issue at a predetermined price (i.e., call price) in low interest environment. |
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| c |
A standard arrangement for the orderly retirement of long-term debt calls for the corporation to make regular payments into an irrevocable trustee fund. |
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| d |
A rights offer has the lower issuance costs than a cash offer given a similar amount of fund raising. |
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| e |
Assuming everything else is constant, the price of a stock after the ex-rights date should decrease since the stockholder is losing an option. |
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- 1) A corporation may choose to use debt financing because a) it has an income tax advantage. b) it typically has a higher cost of capital than equity. c) it carries voting rights. d) it reduces financial leverage. 2. The effective rate of interest on bonds a) is the interest rate specified on the bond certificate. b) is the market rate of interest when the bonds are actually sold. c) is the market rate of interest on the date of public announcement. d) none of these choices.Which of the following are differences between a bond and a common stock? (Select all that apply.) A. A corporation has to pay all bondholders before paying stockholders. B. A bond is a claim on the earnings and assets of a corporation, whereas a common stock promises to make periodic payments for a specified period of time. C. A corporation has to pay all stockholders before paying bondholders. D. A bond is a debt instrument that entitles the owner to receive periodic amounts of money until its maturity date, whereas a common stock represents a share of ownership of the institution that has issued the stock.Which of the following is a disadvantage to a corporation issuing bonds? Group of answer choices A)The required interest payment must be met each period. B)The liquid nature of the bonds makes them attractive to investors who may not want to hold them to maturity. c)The large principal payment due at maturity. d)Both the first and third answers above are both disadvantages. e)The first, second and third answers above are all disadvantages.
- Any of the following incidents will increase the chances of a corporation calling the unpaid callable bonds?a. A decrease in interest rates on the open market.b. The company's shares are lowered in value.c. A higher call premium.d. Both a and b are true.e. A, B, and C are right.Which of the following statements is CORRECT? a. Sinking fund provisions never require companies to retire their debt; they only establish "targets" for the company to reduce its debt over time. b. Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature. c. Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued. d. If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. e. A sinking fund provision makes a bond more risky to investors at the time of issuance.46. One of the points below is the most accurate?a. After a company files for bankruptcy, the administrator liquidates it, using the money to compensate bondholders, overdue salaries, royalties, and legal fees.b. Where the price of the bond approaches the sinking fund call price, a company with a sinking fund payout due will typically opt to purchase back bonds on the open market.c. Income bonds incur dividends only after the amount of interest received by the corporation is directly earned. As a result, these securities cannot default a corporation, making them better for investors than traditional bonds.d. One drawback to zero coupon bonds being that the tax gains from selling securities are not realised before the bonds maturity.e. Callable bonds should have a lower yield to maturity than noncallable bonds, assuming all other factors remain stable.
- Identify the following as either an advantage or a disadvantage of bond financing for a company. a. Bonds do not affect owner control. b. A company earns a lower return with borrowed funds than it pays in interest. c. A company earns a higher return with borrowed funds than it pays in interest. d. Bonds require payment of periodic interest. e. Interest on bonds is tax deductible. f. Bonds require payment of par value at maturity.Statement 1: Bond issuers can take additional loans against the properties that were considered as collaterals for the bonds. Statement 2: Bond issuers can impose the taxes paid for registering the bonds against on the interest and principal claims of the bondholders. Statement 3: Bond issuers can prioritize other claims of other creditors over the bondholders in cases of bankruptcy. Statement 4: Bond issuers can pay dividends of shareholders even though the bondholders were not yet paid so long as the board of directors have decided on it. Statement 5: Bond issuers can take additional loans that would potentially compromise the ability of the issuer to keep its promise so long as other creditors permit it. a.All statements are true b.Statements 1, 2 and 4 are true c.Statements 2, 3 and 5 are trued.Statements 2, 4 and 5 are true e.Statements 3, 4 and 5 are true f. All statements are falseA. Provide brief explanations/definitions for each of the following:Tracking error, Asset Swaps, Liquidity Theory of the Term Structure, Contraction Risk. B. Why would a corporation elect to raise funds via a securitization rather than a corporate bond?
- If bonds payable are not callable, the issuing corporation a.can exchange them for common stock b.can repurchase them in the open market c.is more likely to repurchase them if the interest rates increase d.must get special permission from the SEC to repurchase themT or F - Zero-interest bonds sell at a significant discount that provides an investor with a total interest payoff at maturity. -Bond issuance costs must be reported separately as deferred charges and charged to expense over the life of the bond issue. -According to PAS 37, restructuring is a program that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity; or the manner in which that business is conducted -Provisions are presented in the statement of financial position as part of the line item “Trade and other payables.”Indicate whether each of the following relates to equity (E) or debt (D) financing and whether itmakes that form of financing more, or less, favorable.1.Interest is tax deductible.2. Dividends are optional.3.It must be repaid.4. Additional stock issuances dilute existing stockholders’ control.