Answer Choices:
a. True
b. False
Answer: a. True
Question: Corporations that invest surplus funds in floating-rate preferred stock benefit from getting a relatively stable price, and they also benefit from the 70% tax exemption on preferred dividends received.
Answer Choices:
a. True
b. False
Answer: a. True
Question: Leasing is often referred to as off-balance-sheet financing because lease payments are shown as operating expenses on a firm’s income statement and, under certain conditions, leased assets and associated liabilities do not appear on the firm’s balance sheet.
Answer Choices:
a. True
b. False
Answer: a. True
Question: A warrant is an option, and as such it cannot be used as a “sweetener.”
Answer Choices:
a. True
b. False
Answer: b. False
Question: Firms generally do not call their convertibles unless the conversion value is greater than the call price.
Answer Choices:
a. True
b. False
Answer: a. True
Question: Assume that a piece of leased equipment has a relatively high expected residual value. From the lessee’s viewpoint, it might be better to own the asset rather than lease it because with a high residual value the lessee will likely face a higher lease rate.
Answer Choices:
a. True
b. False
Answer: a. True
Question: A warrant holder is not entitled to vote, but he or she does receive any cash dividends paid on the underlying stock.
Answer Choices:
a. True
b. False
Answer: b. False
Question: Preferred stock typically has a par value, and the dividend is often stated as a percentage of par. The par value is also important in the event of liquidation, as the preferred stockholders are generally entitled to receive the par value before anything is given to the common stockholders.
Answer Choices:
a. True
b. False
Answer: a. True
Question: Heavy use of off-balance-sheet lease financing will tend to
Answer Choices:
a. make a company appear more risky than it actually is because its stated debt ratio will be increased.
b. make a company appear less risky than it actually is because its stated debt ratio will appear lower.
c. affect a company’s cash flows but not its degree of risk.
d. have no effect on either cash flows or risk because the cash flows are already reflected in the income statement.
e. affect the lessee’s cash flows but only due to tax effects.
Answer: b. make a company appear less risky than it actually is because its stated debt ratio will appear lower.
Question: Preferred stock can provide a financing alternative for some firms when market conditions are such that they cannot issue either pure debt or common stock at any reasonable cost.
Answer Choices:
a. True
b. False
Answer: a. True