FINC/320 FINC620 FINC 620 WEEK 5 QUIZ

FINC 620 WEEK 5 QUIZ

  • Question 1
 

On the date of record the stock price drop is:

      
   

Answers:

A. a full adjustment for the dividend payment.
 

B. a partial adjustment for the dividend payment because of the tax effect.
 

 

C. zero because it happens on the ex-dividend date.
 

D. zero because it happens on the payment date.
 

E. None of these.
     
  • Question 2
   
 

Samuel's has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $12 per share. The balance sheet shows $7,000 in the common stock account, $58,000 in the capital in excess of par account and $32,500 in the retained earnings account. The firm just announced a 50% (large) stock dividend. What is the value of the capital in excess of par account after the dividend?

      
   

Answers:

 

A. $58,000
 

B. $61,500
 

C. $87,000
 

D. $96,500
 

E. $100,000
     
  • Question 3
   
 

Murphy's, Inc. has 10,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $8 per share. The balance sheet shows $32,500 in the capital in excess of par account, $10,000 in the common stock account, and $42,700 in the retained earnings account. The firm just announced a 10% (small) stock dividend. What will the balance in the retained earnings account be after the dividend?

      
   

Answers:

 

A. $34,700
 

B. $35,700
 

C. $42,700
 

D. $49,700
 

E. $50,700
     
  • Question 4
   
 

You owned 200 shares last year and received a stock dividend of 5% at the end of last year. The number of shares you now have is _____ and your wealth has increased by ______%.

      
   

Answers:

A. 10; 5
 

B. 210; 5
 

 

C. 210; 0
 

D. 50,000; 5
 

E. 50,000; 0
     
  • Question 5
 

Homemade dividends are described by Modigliani and Miller to be the:

      
   

Answers:

A. dividend one pays oneself to avoid risky stocks.
 

B. re-arrangement of the firm's dividend stream as management needs.
 

 

C. re-arrangement of the firm's dividend stream by investors buying or selling their holdings in the stock.
 

D. present value of all dividends to be paid.
 

E. None of these.
     
  • Question 6
   
 

You purchased 200 shares of ABC stock on July 15th. On July 20th, you purchased another 100 shares and then on July 22st you purchased your final 200 shares of ABC stock. The company declared a dividend of $1.10 a share on July 5th to holders of record on Friday, July 23rd. The dividend is payable on July 31st. How much dividend income will you receive on July 31st from ABC?

      
   

Answers:

A. $0
 

B. $220
 

 

C. $330
 

D. $440
 

E. $550
     
  • Question 7
   
 

A one-for-four reverse stock split will:

      
   

Answers:

A. increase the par value by 25%.
 

B. increase the number of shares outstanding by 400%.
 

C. increase the market value but not affect the par value per share.
 

 

D. increase a $1 par value to $4.
 

E. increase a $1 par value by $4.
     
  • Question 8
   
 

All else equal, a stock dividend will _____ the number of shares outstanding and _____ the value per share.

      
   

Answers:

A. increase; increase
 

 

B. increase; decrease
 

C. not change; increase
 

D. decrease; increase
 

E. decrease; decrease
     
  • Question 9
   
 

The first public equity issue that is made by a company is referred to as:

      
   

Answers:

A. a rights issue.
 

B. a general cash offer.
 

C. an initial public offering.
 

D. an unseasoned issue.
 

 

E. Both an initial public offering and an unseasoned issue.
     
  • Question 10
   
 

Venture capitalists will frequently

      
   

Answers:

 

A. hold voting preferred stock which will allow them priorities over common stockholders in the event of bankruptcy or liquidation.
 

B. hold voting common stock which will allow them priorities over preferred stockholders in the event of bankruptcy or liquidation.
 

C. hold nonvoting preferred stock.
 

D. hold nonvoting common stock.
 

E. not hold any significant amount of stock.
     
  • Question 11
   
 

Under the _______ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _______ method, the underwriter does not purchase the shares but merely acts as an agent.

      
   

Answers:

A. best efforts; firm commitment
 

 

B. firm commitment; best efforts
 

C. general cash offer; best efforts
 

D. competitive offer; negotiated offer
 

E. seasoned; unseasoned
     
  • Question 12
   
 

Potential investors learn of the information concerning the firm and its new issue from the:

      
   

Answers:

A. pre-underwriting negotiating meeting.
 

 

B. red herring.
 

C. letter of commitment.
 

D. emails from their former finance professor.
 

E. rights offering.
     
  • Question 13
   
 

Empirical evidence suggests that new equity issues are generally:

      
   

Answers:

A. priced efficiently by the market.
 

B. overpriced by investor excitement concerning a new issue.
 

C. overpriced resulting from SEC regulation.
 

 

D. underpriced, in part, to counteract the winner's curse.
 

E. underpriced resulting from SEC regulation.
     
  • Question 14
   
 

During the SEC waiting period the potential issuing company can issue a preliminary prospectus which contains:

      
   

Answers:

A. exactly the same information as the final prospectus except an indication of SEC approval.
 

B. all the information as the final prospectus including red writing stating it is a red herring.
 

C. very limited financial information and red writing stating it is preliminary.
 

D. only a description of what the funds are to be used for.
 

 

E. information very similar to the final prospectus without a price nor with SEC approval.
     
  • Question 15
   
 

Companies use tombstone advertisements in the financial press to:

      
   

Answers:

A. announce the death of the company.
 

B. announce the failure of a financial strategy.
 

 

C. announce the availability of a new issue of a corporate security.
 

D. notify the public of foreclosure.
 

E. None of these.
     

 

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